monetary policy (3.6)

Question 1

what is monetary policy

Answer 1

a policy that aims to control the total supply of money in the economy to try to achieve the governments economic objectives, particularly price stability

Question 2

how does monetary policy change interest rates to achieve economic growth and low unemployment

Answer 2

reducing interest rate- increased spending, increased output and employment

Question 3

how does monetary policy change interest rates to achieve price stability and a healthier balance of payments

Answer 3

increasing interest rates- reduced spending, so more price stability

Question 4

how does monetary policy affect borrowing by consumers(growth/employment)

Answer 4

borrowing by consumers rises as the cost of borrowing is cheaper. more big spending on things like cars and houses

Question 5

how does monetary policy affect borrowing by firms(growth/employment)

Answer 5

if lower interest rates -borrowing by firms rises. more investments made

Question 6

how does monetary policy affect savers(growth/employment)

Answer 6

if lower interest rates- there is a smaller reward for saving. this lowers the incentive to save

Question 7

how does monetary policy affect asset prices(growth/employment)

Answer 7

It becomes more attractive to buy assets and houses so therefore the prices of assets rise

Question 8

how does monetary policy affect disposable incomes

growth/employment

Answer 8

disposable incomes for household rise is interest rates fall as the monthly payment for your mortgage will have fallen

Question 9

when monetary policy is used to achieve price stability what happens

Answer 9

• borrowing by consumers/firms falls
• saving rises
• asset prices falls
• disposable income falls