monetary policy

Question 1

what does the monetray policy involve?

Answer 1

the monetary policy involves manipulating interest rates, the money supply and exchange rates to influence aggregate demand

Question 2

what is the most important tool of the monetary policy?

Answer 2

the most important tool of the monetary policy is the ability to manipulate interest rates

Question 3

what type of policy is monetary policy?

Answer 3

monetary policy is a demand-side policy

Question 4

what are the two types of monetary policy?

Answer 4

the two types of monetary policy are contractionary monetary policy and expansionary monetary policy

Question 5

what does contractionary monetary policy involve?

Answer 5

the contractionary monetary policy involves reducing aggregate demand (AD)

Question 6

how does contractionary monetary policy reduce aggregate demand?

Answer 6

contractionary monetary policy reduces aggregate demand by:

• using a high interest rate
• restricting the money supply
• using a strong exchange rate SICED

Question 7

what does expansionary monetary policy involve?

Answer 7

expansionary monetary policy involves increasing aggregate demand (AD)

Question 8

how does the expansionary monetary policy increase aggregate demand?

Answer 8

the expansionary monetary policy increases aggregate demand by:

• using a low interest rate
• decreasing the restrictions on the money supply
• using a weak exchange rate WIDEC