2.4 Monetary Policy

• How do open market operations affect the money supply?

  1️⃣ Central bank buys government bonds

  2️⃣ Money supply increases
• Monetary policy aims to influence economic activity by controlling the money supply and credit conditions.


  True
• One of the main objectives of monetary policy is maintaining low and stable inflation
• Maintaining low and stable inflation rates preserves the purchasing power of the currency
• Stabilizing the currency ensures international competitiveness and sustainable trade balances.

  True
• Monetary policy objectives include price stability, full employment, economic growth, and balance of payments
• What is one of the primary effects of increasing national wealth and income levels?

  Higher standards of living
• What are the main objectives of monetary policy?

  Price stability, full employment
• How does monetary policy contribute to full employment?

  Stimulates economic activity
• Effects of lowering interest rates in monetary policy:

  1️⃣ Cost of borrowing decreases

  2️⃣ Credit availability increases

  3️⃣ Economic activity is stimulated

  4️⃣ Inflation may increase
• Quantitative easing increases the money supply by purchasing assets such as government bonds
• Contractionary monetary policy reduces borrowing and can slow down economic growth
• What is the primary goal of monetary policy?

  Influence economic activity
• What are the minimum reserves that banks must hold called?

  Reserve requirements
• Arrange the main objectives of monetary policy in their order of importance:

  1️⃣ Price stability

  2️⃣ Full employment

  3️⃣ Economic growth

  4️⃣ Balance of payments equilibrium
• Economic growth is measured by the expansion of GDP
• Higher reserve requirements reduce the money supply
• Expansionary monetary policy leads to a depreciation of the currency
• The effects of monetary policy changes can take several months due to time lags.
• Reserve requirements refer to the minimum reserves banks must hold.


  True
• Match the objective of monetary policy with its description:

  Price Stability ↔️ Maintaining low inflation

  Full Employment ↔️ Reducing unemployment

  Economic Growth ↔️ Promoting GDP expansion

  Balance of Payments Equilibrium ↔️ Stabilizing currency value
• Increasing reserve requirements reduces the money supply.


  True
• Balance of payments equilibrium aims to stabilize the value of the currency.


  True
• Promoting economic growth increases national wealth and income levels
• Open market operations involve the central bank buying and selling government bonds
• Central banks use tools such as interest rates and open market operations to influence overall economic activity
• Match the monetary policy objective with its description:

  Price Stability ↔️ Maintaining low and stable inflation

  Full Employment ↔️ Reducing unemployment through economic activity

  Economic Growth ↔️ Promoting expansion of GDP

  Balance of Payments Equilibrium ↔️ Stabilizing the value of the currency
• Open market operations involve the central bank buying or selling government bonds.


  True
• Effects of expansionary monetary policy:

  1️⃣ Borrowing becomes cheaper

  2️⃣ Consumption and investment increase

  3️⃣ Inflation may rise

  4️⃣ Domestic currency depreciates

  5️⃣ Exports become competitive
• Expansionary monetary policy can lead to higher inflation due to increased demand.

  True
• Unstable monetary policy can discourage investment and lead to higher inflation.


  True
• What are the main objectives of monetary policy in terms of economic activity?

  Price stability, full employment
• What does quantitative easing aim to stimulate during periods of low growth or deflation?

  Money supply
• What does full employment aim to reduce?

  Unemployment
• How do higher interest rates affect the money supply?

  Decrease
• What effect does an expansionary monetary policy have on interest rates?

  Decrease
• What does stable and predictable monetary policy encourage?

  Investment
• Monetary policy refers to actions taken by a central bank to control the money supply and credit conditions to influence economic activity
• Quantitative easing increases the money supply by purchasing assets
• The central bank sets interest rates to influence borrowing