Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
22 Cards in this Set
- Front
- Back
|
What decisions does monetary policy involve? |
Interest rates, money supply, and exchange rates |
|
|
Is monetary policy demand or supply side? |
Demand side |
|
|
What do changes to interest rates affect? |
Borrowing, saving, spending and investment |
|
|
What two ways can monetary policy be utilised? |
Contractionary (tight) or expansionary (loose) |
|
|
What does contractionary (tight)monetary policy Involve? |
Reducing aggregate demand using high interest rates, restrictions on money supply, strong exchange rate |
|
|
What does expansionary ( loose) monetary policy Involve? |
Increasing aggregate demand using low interest rates, fewer restrictions on money supply, weak exchange rate |
|
|
Site some examples of trade offs involved with using monetary policy? |
Increasing economic growth and reducing unemployment may mean increasing inflation and worsening balance of payments. |
|
|
What is usually the trade-off of reducing unemployment? |
Increasing inflation |
|
|
Who sets interest rates? |
Monetary Police Committee |
|
|
What's the UKs target inflation rate? |
2% |
|
|
Why would the Monetary policy committee increase official rate of interest? |
To reduce inflation |
|
|
For what reason is the Bank Of England independent?! |
To ensure stability and credibility |
|
|
What is the main objective of monetary policy? |
Price stability, although it must take into account other macro economic objectives |
|
|
What are the ripple effects of an increase in interest rates? |
Less borrowing, less consumer spending, less investment by firms, more saving, decrease in exports, increase in imports. |
|
|
Disadvantage of a high exchange rate? |
Exports decline, worsening balance of payments |
|
|
What is quantitative easing? |
Increasing the money supply, enabling individuals and firms to spend more. The Bank Of England creates this money and buys assets owned by financial institutions and firms in hope that these will either spend money or lend it. |
|
|
When is quantitative easing used? |
When it's necessary to adopt an expansionary (loose) monetary policy to stimulate aggregate demand at a time when interest rates are low. |
|
|
Why did the 2007 credit crunch have an impact on aggregate demand? |
Banks weren't willing to lend, crashing demand |
|
|
What effect does Quantitative easing have on inflation? |
Increases it |
|
|
What impact does inflation have on currency? |
Makes it weaker |
|
|
What is the main danger of Quantitative easing? |
Financial institutions may initially use the new money to increase their reserves, and not lend until the economy improves. |
|
|
What is the main aim of monetary policy in the UK? |
Improve stability |
