Monetary Policy Demand-side policies 2.6.2

Question 1

What is Monetary Policy

Answer 1

When the central bank manipulates the base interest rate or the money supply in order to influence aggregate demand

Question 2

What is contractionary Monetary Policy

Answer 2

When inflation rate below target, central bank will ↑ base interest rate, which ↓ AD, which ↓ Inflation

Question 3

What is expansionary Monetary Policy

Answer 3

When inflation rate above target, central bank ↓ base interest, which ↑ AD, which ↑ Inflation

Question 4

Define the base interest rate

Answer 4

The rate central banks will lend to high street banks

Question 5

Biggest impacts on manipulating the interest rates

Answer 5

Savings
Mortgages
Investments
Exports - Imports

Question 6

Define Quantitive easing

Answer 6

Used when base interest rate is close to zero, Central bank buys financial assets from high street banks to increase money supply and encourage lending

Question 7

What are the risks of quantitive easing

Answer 7

Hyperinflation/Inflation