Monetary eval

• How long can interest rate changes take to fully affect the economy?

  12–24 months
• Why might monetary policy be considered too late or mistimed?

  Because of the time lags in interest rate changes
• For which type of inflation does monetary policy work well?

  Demand-pull inflation
• Why is monetary policy less effective for cost-push inflation?

  Because it is driven by external factors like energy prices
• How does household and firm confidence affect monetary policy effectiveness?

  Lack of confidence may lead to a liquidity trap
• Who benefits from low interest rates?

  Borrowers
• How do homeowners with variable mortgages feel changes compared to renters?

  They feel changes more acutely
• What happens to the exchange rate when interest rates increase?

  The currency strengthens
• How do higher interest rates affect imports and exports?

  Cheaper imports but harms exporters
• What does the impact of interest rate changes depend on regarding trade?

  Elasticity of demand for exports/imports
• Why can't small open economies fully control inflation?

  Due to global commodity prices and foreign policies
• What effect do small interest rate adjustments have in strong inflationary pressures?

  They may have little effect
• How can monetary policy be weakened?

  If fiscal policy pulls in the opposite direction
• When does monetary policy work best?

  When policies are coordinated
• What is a potential downside of quantitative easing?

  It may inflate asset prices without boosting real investment
• What happens if people lose confidence in the Bank of England's inflation-targeting credibility?

  Policy becomes less effective
• What happens if there is low consume confidence

  Even though interest rates decrease consumption/investment wont