Slide 1: Comparative Analysis - Monetary

Question 1

Monetary implementation: Change in Interest rates and Money Supply

1. Policy Rate

Answer 1

1. Policy Rate

Central banks set a benchmark interest rate. This rate is a reference point in the economy. Central banks adjust this rate to influence borrowing and lending activity. Lower interest rates tend to encourage borrowing and spending, stimulating economic growth. Conversely, higher interest rates can discourage borrowing and consumption, potentially slowing down economic activity.

Question 2

Monetary implementation: Change in Interest rates and Money Supply

2. Open market operations

Answer 2

2. Open market operations

Central banks buy or sell government securities in the open market .

Buying government securities (expanding the money supply)

This is when the country wants to increase the money supply, and lower interest rates. The securities are purchased by the government and money is added into the bank reserves. With excess reserves, banks are able to make more loans, to businesses and consumers looking for spending capital, and stimulating the economy. The low cost of loans, interest rates drift downwards.

Selling government securities (contracting the money supply)

On the contrary this is when a country want to decrease the money supply, and increase the interest rates, cooling down the economy. These securities will be sold to the central banks from an entity like a federal reserve. Pulling money out of the system, with the cost of loans increasing, consumers and businesses will pull back their spending, and interest rates will rise.

Question 3

Set By Central Bank

Answer 3

Monetary policies are set by central bank

Question 4

Targeting inflation

Answer 4

Monetary policies focus on managing economic fluctuations to achieve price stability.

Question 5

Effect on exchange rates / mortgages

Answer 5

When the central bank affects the interest rates of a country, it can make the domestic currency more or less attractive to foreign investors seeking higher returns, causing the currency to appreciate or depreciate based on its attractiveness.

Additionally, monetary policy can directly impact mortgage rates. Lower interest rates stimulate housing demand and affordability, while higher rates can have the opposite effect, influencing borrowing costs for homebuyers and homeowners.

Question 6

Politically independent

Answer 6

Central banks are able to take decisions independently, without government interference.