Monetary Policy Flashcards
1
Q
What is the Monetary Policy
A
This involves changing the interest rates or the manipulation of the money supply.
• This done by the Monetary Policy Committee.
2
Q
What are the aims of the Monetary Policy
A
- Control the rate of inflation
- Maintain sustainable economic growth
- Influence the Exchange rate
3
Q
What are the Macro-Economic Policy Objectives
A
- Sustainable Economic Growth
- Low Unemployment
- Control of Inflation
- Satisfactory Position of Balance of Payments
- Satisfactory Position on the Budget Balance
4
Q
What are the Effects of Contractionary Monetary Policy
A
- Makes borrowing more expensive
- Firms will be less willing to invest
- Costs of mortgage repayments increase
- Appreciation in currency
5
Q
What is Contractionary Monetary Policy
A
This is where the interest rates are high
6
Q
What are the effects of Expansionary Monetary Policy
A
- Reduce the costs of mortgage repayments
- Increase purchasing power
- Reduce the costs of paying back credit
7
Q
What is Expansionary Monetary Policy
A
This is where interest rates are low
8
Q
Evaluation of Interest Rates
A
- Time lags
- Conflicting with MEPO’s
- Redistribution of Income
- Balance of Payments
