UNIT IX: The Philippine Monetary Policy Flashcards
anything that is generally accepted in payment for goods or services or in the repayment of debts.
money
FUNCTIONS OF MONEY
-medium of exchange (to pay for goods and services, in the form of currency and checks)
-unit of account (used to set the value of items, measure value of economy)
-store of value (used to save purchasing power)
money made up of precious metals or another valuable commodity
commodity money
paper currency was under which development?
fiat money
an instruction from you to your bank to transfer money from your account to someone else’s account when she deposits the check.
CHECKS
can be written for any amount up to the balance in the account, making transactions for large amounts much easier
CHECKS
banks provide websites at which you just log on, make a few clicks, and thereby transmit your payment electronically.
ELECTRONIC PAYMENT
money that exists only in electronic form
E-MONEY
enable consumers to purchase goods and services by electronically transferring funds directly from their bank accounts to a merchant’s account.
DEBIT CARD
purchased for a preset amount that the consumer pays up front, like a prepaid phone card.
STORED-VALUE CARD
system of trading commonly practiced throughout the world and adopted by the Philippines.
BARTER
first local form of coinage was called?
PILONCITOS
earliest coins brought in by the galleons from Mexico and other Spanish colonies.
COBS or MACUQUINAS
first crude copper or bronze coins locally produced in the Philippines.
barrilas (struck in the PH by order of the Spanish govt)
was vested with the authority to produce currencies under the Malolos Consti of 1898?
GENERAL EMILIO AGUINALDO
at the Malolos arsenal, two types of _______ (amount) copper coin were struck
two-centavo
rate of change in the weighted average prices of goods and services typically purchased by consumers.
INFLATION
average price of a standard basket of goods and services (hundreds of consumption items such as food products, clothing, water, and electricity) consumed by a typical Filipino family for a given period.
Consumer Price Index (CPI)
rate of change in the weighted average prices of all goods and services in the CPI basket.
HEADLINE INFLATION
an alternative measure of inflation that removes certain components of the CPI basket that are subject to volatile price movements such as rice, corn, fruits and vegetables, fuel items
CORE INFLATION
pressures on inflation caused by relatively higher demand compared to the available supply of goods and services.
DEMAND-PULL FACTORS
pressures on inflation resulting from shortages in supply and increases in the cost of production without a corresponding expansion in output.
SUPPLY SHOCKS
price stability is where we have a ____ and stable inflation
LOW
price stability effects on the economy
-supports economic growth (allows households to plan)
-export firms, pricing of products competitively
-promotes income equality (protect purchasing power of less privileged)
BSP’s role in relation to inflation
control inflation through its conduct of monetary policy instruments
set of measures or actions implemented by the central bank to affect the supply
of money and credit in the economy.
MOENTARY POLICY
Monetary policy setting that intends to increase the level of liquidity/money supply in the economy and which could also result in a relatively higher inflation path for the economy.
EXPANSIONARY
EXPANSIONARY tends to encourage economic activity as ______ (more or less) funds are made available for
lending by banks. this, in turn, ______ (increases or decreases) aggregate demand which could
eventually fuel inflation pressures in the domestic economy.
more; increases
decrease the level of liquidity/money supply in the economy and which could also result in a relatively lower inflation path for the economy.
CONTRACTIONARY
CONTRACTIONARY tends to limit economic activity as _____ (more or less) funds are made available for lending by banks. This, in turn, ________ (increases or decreases) aggregate demand which could eventually temper inflation pressures in the domestic economy.
less; decreases/lowers
how does the BSP implement monetary policy?
-interest rate
-reserve requirement
-rediscounting
-open market operations
-special deposit accounts
-moral suasion
the policy interest rate at which the BSP borrows from banks with government securities as collateral.
Overnight Reverse Repurchase (RRP) Rate
refers to the proportion of banks’ deposits and deposit substitute liabilities that banks are required to hold as reserves
reserve requirement
special refinancing facility of central banks wherein a financial institution borrow money from the BSP using promissory notes and other loan papers of its borrowers as collateral.
rediscounting
sale or purchase of government securities by the BSP to withdraw liquidity from or inject liquidity into the system
open market operations
fixed-term deposits by banks and trust entities of BSP-supervised financial institutions with the BSP.
special deposit accounts
influence which the central bank exercises to induce or convince banks to conduct operations in a manner that would contribute to the attainment of monetary goals but not necessarily support the profit-maximizing objectives of the banks.
moral suasion
basic approach of moentary policy in the PH?
inflation targeting framework
WHAT IS INFLATION TARGETING?
framework for monetary policy that focuses mainly on achieving price stability as the ultimate objective of monetary policy. It entails the announcement of an explicit inflation target set by the Government, which the BSP commits to achieve over a two-year horizon.
level of inflation which the BSP aims to achieve over a given period under the inflation targeting framework.
INFLATION TARGET
represents policymakers’ desired inflation rate, which they commit to achieve over the policy horizon.
INFLATION TARGET
represents the expectation or prediction of the inflation rate over the policy horizon, given current and available information
INFLATION FORECAST
Under inflation targeting, the central bank does what
compares actual headline inflation against inflation forecasts. It uses various monetary policy instruments at its disposal to achieve the inflation target.
approach to monetary policy whereby the central bank adjusts its monetary
policy instruments to control the level of monetary aggregates.
MONETARY AGGREGATE TARGETING
process through which adjustments in the BSP’s stance, mainly through its policy rate, work their way through the economy by influencing the demand for goods and services, and ultimately inflation.
Monetary Policy Transmission Mechanism
FEATURES OF INFLATION TARGETING?
-simple framework
-greater focus on price stability
-forward-looking
-comprehensive approach
-promotes transparency
-increases accountability
