Monetary Policy : Objectives

Question 1

What is monetary policy?

Answer 1

The process by which the monetary authority of a country CONTROLS THE SUPPLY OF MONEY, often targeting an INFLATION RATE OR INTEREST RATE to ensure price stability and general trust in the currency

Based on the view that money supply, bank credit and interest rates influence the behaviour of the real economy

Influence on output, employment and prices

Question 2

What are the 4 main objectives of monetary policy?

Answer 2

1. Maintain high and stable employment
2. Price stability (low inflation)
3. Balance of payments (currency flow) equilibrium
4. Economic growth
   * difficult to achieve simultaneously. Economic management/external factors

Question 3

What can monetary policy be…

Answer 3

Expansionary

Or

Contractionary

Increase vs decrease supply

Question 4

What are the controls selected to achieve a particular economic objective called…

Answer 4

Monetary variable : target variable

Question 5

The Bank of England will…. To achieve a target variable

Answer 5

Use various monetary instruments or techniques such as altering interest rates, open market ops, quantitative easing, reserve ratios and directives

Question 6

Pre vs post 2008

Answer 6

Pre 2008 focus on stable financial environment to boost capitalist forces and underpin growth

Post 2008 focus on stabilising output and employment to offset recessionary forces in economy