Monotary policy

Created by

Max Ivinson

Cards (17)

What does monetary policy involve? 
Changes in interest rates, money supply, exchange rates
What is contractionary monetary policy used for?
To increase aggregate demand when too low
What is expansionary monetary policy used for?
To decrease aggregate demand when too high
What is an interest rate?
Reward for saving and cost of borrowing
What are the two main types of interest rates?
Borrowing interest rates and savings rates
What are examples of borrowing interest rates?
Mortgage rates, credit card rates, payday loans
How does the Bank of England use policy interest rates?
To regulate the economy and meet objectives
What are the four steps in the transmission mechanism of monetary policy?
Changes in market and interest rates
Impact on demand
Effect on output, jobs, and investment
Real GDP and price inflation
How long can it take for the full effects of interest rate changes to manifest?
Between 12 and 24 months
What should be considered when analyzing the effects of interest rate changes?
Time lags in the effects
Why is monetary policy not an exact science?
It involves some guessing and uncertainty
What factors can affect costs and prices in monetary policy?
Many factors can change inflation risks
How does monetary policy interact with fiscal policy?
It must consider effects on demand and output
How does quantitative easing work?
Central bank creates money electronically
Adds it to their balance sheet
Buys financial assets, mainly government bonds
Increased demand leads to higher asset prices
Can lower long-term interest rates
Stimulates demand through lower interest rates
What is contactory monotary policy
Monotary policy which decreases spending
What is expansonary monotary policy 
Monotary policy which increases spending
Whats an intrest rate
Intrest rates- An intrest rate is the reward for saving and the cost of borrowing expressed as a percentage of the money saved or borrowed.