Monetary

• What does monetary policy involve?

  Changes to interest rates, money supply, exchange rate
• 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 central banks
• What is the mandate of central banks worldwide?

  To control inflation
• What is the inflation target for the Bank of England?

  2%
• What is expansionary monetary policy aimed at?

  Boosting aggregate demand
• What is contractionary monetary policy aimed at?

  Reducing aggregate demand
• Why would a central bank use expansionary monetary policy?

  To raise demand when inflation is below target
• What is another goal of central banks besides inflation targeting?

  Macroeconomic stability
• How can expansionary monetary policy help reduce unemployment?

  By increasing aggregate demand
• What is a primary reason for using contractionary monetary policy?

  To hit the inflation target when inflation is high
• What can excessive growth in house prices lead to?

  Risk of financial sector collapse
• How can contractionary monetary policy promote saving?

  By increasing interest rates
• What is the effect of contractionary monetary policy on the current account deficit?

  It can help reduce the deficit
• What is the main focus of this video?

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

  Interest rate cuts
• What happens when the central bank cuts interest rates?

  It affects various interest rates in the economy
• How do lower interest rates affect consumer borrowing?

  They make borrowing cheaper
• What is the impact of lower interest rates on consumer spending?

  It increases consumer spending
• How do lower interest rates affect mortgage payments?

  They reduce monthly mortgage payments
• What is the effect of lower interest rates on business loans?

  They lower borrowing costs for businesses
• How do lower interest rates affect the exchange rate?

  They can lead to currency depreciation
• What is 'hot money' in the context of monetary policy?

  Savings that chase the best interest rate
• What happens to aggregate demand when interest rates are cut?

  Aggregate demand shifts to the right
• What is the link between expansionary monetary policy and long-run aggregate supply?

  Investment can boost long-run growth
• What is the core intention of expansionary monetary policy?

  To boost aggregate demand
• What are the types of expansionary monetary policy?

  • Interest rate cuts
  • Quantitative easing
  • Reductions in the exchange rate
• What are the channels through which interest rate cuts affect the economy?

  1. Lower credit card interest rates
  2. Reduced mortgage rates
  3. Lower business loan rates
  4. Impact on exchange rates
  5. Increased consumer spending
• What are the potential side effects of expansionary monetary policy?

  • Increased demand-pull inflation
  • Long-term growth through investment
  • Improved productive efficiency
• What is the primary goal of a central bank when cutting interest rates?

  To target inflation
• What risk arises from cutting interest rates to stimulate growth?

  Demand-pull inflation
• How does cutting interest rates affect aggregate demand?

  It shifts aggregate demand to the right
• What is a potential side effect of lower interest rates?

  Higher demand-pull inflation
• How can lower interest rates affect the current account deficit?

  It can widen the current account deficit
• What is the Keynesian argument regarding interest rates?

  Interest rates have a lower bound
• What happens when interest rates hit their lower bound?

  The economy enters a liquidity trap
• Why might further interest rate cuts be ineffective in a liquidity trap?

  Consumers and businesses hold cash
• What negative impact do interest rate cuts have on savers?

  Lower returns on savings
• What could happen if inflation exceeds nominal interest rates?

  Real return on savings could be negative
• What incentive do lower interest rates create for consumers?

  To borrow and spend