Monetary policy

• What does monetary policy involve?

  Changes to interest rates, the money supply, and the exchange rate by the central bank.
• What is the primary goal of monetary policy?

  To influence aggregate demand.
• How does monetary policy differ from fiscal policy?

  Monetary policy is enacted by a central bank independent of the government.
• What is the inflation target for the Bank of England?

  2% inflation target.
• What are the two types of monetary policy?

  Expansionary and contractionary monetary policy.
• What is the purpose of expansionary monetary policy?

  To boost aggregate demand.
• What is the purpose of contractionary monetary policy?

  To reduce aggregate demand.
• Why would a central bank use expansionary monetary policy?

  To boost aggregate demand and raise demand from inflation if the inflation rate is below target.
• What is one of the goals of central banks besides inflation targeting?

  Macroeconomic stability.
• What can excessive growth of house prices lead to?

  A risk to the financial sector and potential recession.
• How can contractionary monetary policy help reduce the current account deficit?

  By reducing aggregate demand, which lowers spending on imports.
• What is the primary focus of this video?

  Expansionary monetary policy.
• What is the 'Big Daddy' of expansionary monetary policy?

  Interest rate cuts.
• What is the monetary policy transmission mechanism?

  The process through which an interest rate cut affects various economic variables.
• How does a cut in the central bank interest rate affect consumer borrowing?

  It lowers borrowing costs, incentivizing more borrowing.
• What happens to saving interest rates when the central bank cuts interest rates?

  Saving interest rates typically fall, reducing the incentive to save.
• How do lower mortgage rates affect households?

  They reduce monthly payments, increasing disposable income.
• What is the effect of lower interest rates on business loans?

  It increases the incentive for businesses to borrow for investment.
• What is 'hot money' in the context of monetary policy?

  Savings that chase the best interest rate, leading to outflows from the economy.
• How does a weak currency affect net exports?

  It boosts net exports by making exports cheaper for foreign buyers.
• What is the relationship between expansionary monetary policy and long-run aggregate supply?

  Investment from lower interest rates can boost long-run aggregate supply.
• What is the core intention of expansionary monetary policy?

  To boost aggregate demand.
• What are the main objectives of central banks when implementing monetary policy?

  • Control inflation
  • Achieve macroeconomic stability
  • Promote economic growth
  • Reduce unemployment
• What are the channels through which interest rate cuts affect the economy?

  1. Lower borrowing costs for consumers
  2. Reduced saving interest rates
  3. Decreased mortgage rates
  4. Lower business loan interest rates
  5. Impact on exchange rates
• What are the potential side effects of expansionary monetary policy?

  • Increased aggregate demand
  • Higher growth rates
  • Reduction in unemployment
  • Potential demand-pull inflation
• How does investment relate to long-run aggregate supply in the context of monetary policy?

  • Investment can increase the quantity and quality of capital
  • Improves productive efficiency
  • Contributes to long-term economic growth