policies - expansionary moentary policy

Question 1

whats the big daddy of MP

Answer 1

INTEREST RATES

Question 2

Deine IR

Answer 2

cost of borrowing and reward or saving

Question 3

EXPANSIARY MONETARY POLICY AKA

Answer 3

INTEREST RATE CUTS

Question 4

Expansionary monetary policy will feed through a x before hitting x

Answer 4

transmission mechanism

real economy

Question 5

What does idea of transmission mechanism mean with IRcuts

Answer 5

IR cut by CB

will work thorugh various channels affecting a variety of AD variables as hits real econ

Question 6

a cut by CB will affect x IR

Answer 6

wide variety of IR in econ

Question 7

how do we reffer to transmission mechansim

Answer 7

monetary policty transmission mechanism

Question 8

what are the 4 different types of IR

Answer 8

credit card IRR
saving rates
mortgage rates
business loan rates

Question 9

apart from IR EMP can affect

Answer 9

exchange rate

Question 10

explain how EMP will impact credit IR and the effect this has

6 points

Answer 10

lower credit card IR ,

therfore lower borrowing costs for consumerrs
now cheaper to borrow ,

incentivising borrowing and less saving

which increases MPC

as they borrow gonna spend on big ticket items e. g cars and jewelry

therfore AD boost as consumption rises

Question 11

explain how IR cut affect savings rate and the impact of this

hint define IR in terms of saving

Answer 11

ir - rate or return on saving

if cb cuts IR

IR on saving acc coul drop

reducing incentive to save

increasing incentive to spend

increases consumption

shift AD right

Question 12

explain how MORTGAGE rates are effeccted and impacted by EMP

about 9 points

Answer 12

cb cuts IR

mortage rates will fall

for hh that have tracker aid / variable rate mortgages

these loan’s rate follow CB IR - so they fall

so hh pay less montly towards their mortgage payments

so more disposable income

increase MPC

which increases consumption

shift ad right

eval - depends on consumrs with tracker aid

Question 13

business loans ir impact as a result of EMP

Answer 13

if IR come down

increases incentive for bs to borrow as cost of borrowing has redued

if bs borrow they can invest

which shifts AD right

Question 14

HOW CAN LOWER IR affect ER

Answer 14

Weakens ER as savers got lesss of incentive to save in country if IR is lower

therfore they look to move money out of ocuntry

this is know as hot money outlfow for an econ

Supply of currency increases therfore deprecating it - becasue indi sell the currency to by another one

Weaker currency boost net exports due to WPIDEC - people export more , import less

shift AD right whihc increases price level

Question 15

what are hot money outlfows

Answer 15

savings that chase the best IR - if low in one econ but higher they move theri moeny there

Question 16

what graph do you draw

Answer 16

ad shift right
wiht long LRAS

we see increase in growht and therfore uemplyment

and increase in demand pull inflation - whihc may be desirbale if inflation below target rate

Question 17

theres a link bettween expansionary policy and

Answer 17

LRAS

Question 18

In terms of monetary policy any link to LRAS will be a

Answer 18

nice side effect

Question 19

how does LRAS straight line shift right as a result of EMP

Answer 19

Via increasee in investment when bs get lower ir and bs borrow more to invest

boost lras via icrease in quality and quality of CAPITAL and imporvement in productive efficiency in econ - so we see

Question 20

as mpc shifts lras we see imporvement s in both

Answer 20

long and short term growth rates via increase in AD

Question 21

but whats bad about LRAS increasing

Answer 21

causes deflation !(which one)