Monetary Policy

• What does monetary policy refer to?

  It refers to the actions taken by a country's central bank to control the money supply and interest rates.
• What are the key tools of monetary policy?

  Interest rates, open market operations, and reserve requirements.
• What is contractionary monetary policy intended to do?

  To raise interest rates or decrease the money supply to combat inflation.
• What action might the Bank of England take during an economic downturn?

  Lower interest rates to encourage borrowing and spending.
• what is the definition of interest rates?

  the cost of borrowing and the reward for saving money.
• what is Quantitative Easing (QE)?

  When the central bank injects money into the financial system (e.g. banks and financial institutions) by buying financial assets (e.g. government/corporate bonds) to increase the money supply.
• A large rise in interest rates is likely to cause an increase in unemployment
• Raising interest rates can reduce excess demand but it could cause an increase in cost-push inflation.