Monetary Policy Flashcards
1
Q
What is the purpose of monetary policy?
A
To control the amount of money flowing around the circular flow.
2
Q
Why do we want to control the amount of money within the circular flow?
A
Because too much money floating around is inflationary.
3
Q
What are the components of monetary policy?
A
Interest rates & credit availability.
4
Q
What is quantitative easing?
A
Quantitative easing (QE) is an unconventional form of monetary policy where a Central Bank creates new money electronically to buy financial assets, like government bonds.
5
Q
DISTINGUISH between monetary policy and fiscal policy (6 MARKS)
A
- Fiscal policy uses taxation and government spending in order to influence aggregate demand.
- Monetary policy uses interest and credit availability in order to control the amount of money flowing around the circular flow.
- However, fiscal policy is controlled by the government; whereas, monetary policy is controlled by the MPC.
6
Q
Who are the MPC?
A
The bank of England monetary policy committee.
