Monetary policy and QE

• What is the definition of monetary policy?

  Control of money flow by central banks
• What are the key roles of central banks?

  • Monetary Policy: Set interest rates for inflation control
  • Issuing Currency: Print and distribute banknotes and coins
  • Overseeing Commercial Banks: Regulate and supervise banks
  • Financial Stability: Prevent financial crises and ensure stability
• How does the role of issuing currency relate to monetary policy?

  Issuing currency supports monetary policy implementation
• What does the term 'interest rates' refer to in monetary policy?

  Costs of borrowing set by the central bank
• How do central banks contribute to economic growth?

  By managing interest rates and inflation
• Why do central banks oversee commercial banks?

  To ensure stability and compliance with rules
• What is the target inflation level in the UK?

  2%
• What is one goal of central banks regarding financial stability?

  To prevent financial crises
• What are interest rates?

  Price paid when borrowing money
• What does 'money supply' mean in the context of monetary policy?

  Amount of money circulating in the economy
• What is the effect of low interest rates on business investment?

  Business investment increases as funding becomes affordable
• What happens to business investment when interest rates are high?

  Business investment decreases as funding costs rise
• How do interest rates affect consumer spending?

  High rates decrease spending; low rates increase it
• What does financial stability aim to ensure?

  That the financial system runs smoothly
• How does money supply influence spending?

  More money supply increases spending and investment
• What are interest rates?

  The cost of borrowing money
• What tools do central banks use to achieve monetary policy goals?

  • Setting interest rates
  • Implementing quantitative easing
  • Conducting open market operations
• How do low interest rates affect exchange rates?

  Low rates weaken exchange rates as returns are less attractive
• What is inflation?

  A sustained increase in general price levels
• What is the primary goal of monetary policy?

  • Maintain economic stability
  • Control inflation
  • Promote GDP growth
  • Manage employment levels
• What happens to savings when interest rates are high?

  Savings increase as higher returns encourage saving
• What is the effect of low interest rates on savings?

  Savings decrease as returns are less rewarding
• What does employment indicate in an economy?

  The number of people working
• What is the effect of falling interest rates on economic growth?

  They encourage spending and investment, boosting growth
• What is the effect of low interest rates on the economy?

  They encourage borrowing and stimulate growth
• What is the primary role of central banks?

  To manage monetary policy and financial stability
• What are open market operations?

  Buying or selling government securities
• How do interest rates influence economic activity?

  They affect borrowing costs and spending levels
• How do interest rates affect borrowing costs?

  Higher rates increase borrowing costs for banks
• What is the main goal of quantitative easing?

  To lower long-term interest rates and increase money supply
• How do central banks implement quantitative easing?

  By creating new money to buy assets
• What are the key elements of monetary policy?

  • Interest Rates: Set by central banks
  • Money Supply: Amount circulating in the economy
  • Inflation Control: Measures to maintain target inflation
  • GDP Growth: Support for economic expansion
  • Employment: Policies to reduce unemployment
• Who are central banks?

  Institutions managing a country's monetary policy
• How do rising interest rates impact overall economic activity?

  They discourage spending and investment, controlling inflation
• What does GDP growth measure?

  The increase in total value of goods produced
• What happens when central banks buy securities in open market operations?

  They increase the money supply and reduce interest rates
• What do central banks issue?

  Banknotes and coins
• What does quantitative easing aim to prevent?

  Deflation
• What is quantitative easing (QE)?

  A tool to inject liquidity by creating money
• What is the impact of open market operations on the economy?

  It controls money supply and influences interest rates