chapter 5

• Monetary policy


  Measures or actions taken by the central bank to influence the general price level and the level of liquidity in the economy
• Monetary policy


  Managing the country's money supply in the form of credit, cash, checks, and money market mutual funds
• Monetary policy


  One of the two ways a country's government can influence the economy, with the other one being Fiscal Policy
• When the philippines establishes the central bank, it also established its own monetary policy. TRUE
• monetary policy

  It is how the government controls the supply and availability of money, the cost of money, and the rate of interest.
• Liquidity

  Monetary policy manages economic growth and inflation by balancing
• increases

  To further economic growth, it ----liquidity.
• reduces


  to prevent inflation, it ---- liquidity
• TRUE


  true or false. Monetary policies work mostly around credit, including loans, mortgages, and bond.
• INTEREST RATES, RESERVE REQUIREMENTS, BOND AMOUNTS

  Central banks use --------- that banks must hold in influencing how much a bank can lend, and therefore influencing the money supply in other forms.
• MANAGING INFLATION, REDUCING UNEMPLOYMENT, PROMOTING MODERATE LONG-TERM INTEREST RATES


  3 MONETARY POLICY OF A CENTRAL BANKS
• CONTRACTIONARY AND EXPANSIONARY MONETARY POLICY


  2 SETTINGS OR TYPES OF MONETARY POLICY
• FALSE- SLOW

  This type of monetary policy fast down growth as fewer businesses and individuals borrow from banks. true or false
• contractionary monetary policy

  This is used by central banks to reduce inflation, wherein they reduce the money supply by restricting the amount of money banks can lend. This then leads to banks charging higher interest rates and increase loan fees.
• expansionary monetary policy.

  The aim of this setting is to lower unemployment rates and to avoid recession. This setting does the opposite: it intends to increase the level of liquidity or money supply by giving banks more money to lend out.
• true


  t or f . With the high supply of money, banks could lower their interest rates and make loans cheaper.
• EXPANSIONARY MONETARY POLICY

  This setting increases demand and increases economic growth; however, this also could result in a relatively higher inflation path for the economy.
• TRUE

  In the Philippines, the primary objective is promoting a low and stable inflation conducive to a balanced and sustainable economic growth. T OR F
• ra no. 265

  the authority to provide policy directions in the monetary, banking, and credit systems of the Philippines is given to the Bangko Sentral ng Plipinas.
• ra no. 265

  . It exists to supervise operations of banks and to regulate the non-bank financial institutions, as well as to keep aggregate demand from growing rapidly or growing too slowly.
• 1980s

  The first Philippine monetary framework from the ----followed a monetary aggregate targeting approach in its monetary policy.
• money aggregate targeting approach

  This approach believed that the relationship between money, output, and inflation is stable and predictable, particularly that changes in money supply is related to price changes or inflation.
• money aggregate targeting approach

  With the ------, the BSP is assumed to be able to determine the level of liquidity necessary for the ideal inflation level that would be consistent with the growth objective.
• TRUE

  Under this monetary framework, the BSP directly controls or targets the money supply, resulting to it indirectly controlling inflation. t or f
• In June of 1995,

  the BSP adopted a modified monetary framework
• inflation targeting

  Under this new framework, the BSP ensures that price levels are stable even with occasional economic shocks.
• january of 2002

  It was in-------when the Bangko Sentral ng Pilipinas formally adopted the inflation targeting framework as its sole monetary policy.
• Consumer Price Index

  The ideal inflation rate is measured through the------- as the ultimate end goal of the monetary policy under the inflation targeting framework is price stability.
• INFLATION TARGETING FRAMEWORK

  under this framework, the central bank establishes an explicit inflation target and commits to achieving it in a given time period. The central bank then uses various instruments to achieve this target, and in the event that they fail, it is obligated to provide a public explanation and come up with measures on how to meet the inflation target again.
• SAFRPID (SIMPLE, ALLOWS, FORWARD-LOOKING, REFLECTS, PROMOTOES TRANSPARENCY, INCREASES, DOES NOT DEPEND


  IMPORTANT FEATURES OF INFLATION TARGETING FRAMEWORK
• TRUE

  The central bank must be able to conduct monetary policy without political interference. T OR F
• TRUE

  The central bank should also have fiscal independence T OR F
• GOOD FORECASTING ABILITY

  The central bank should have a good statistical model for forecasting inflation.
• TRANSPARENCY

  communicating clearly to the public its policy actions and the reasons behind them.
• ACCOUNTABILITY

  should actual inflation deviate from the target.
• SOUND FINANCIAL SYSTEM

  make monetary policy more effective in influencing output and prices. The financial system acts as the intermediary by which the BSP influences the supply of money and credit in the economy.
• JUNE 3, 2016

  the Bangko Sentral shifted to a new monetary operation in order to improve the transmission of monetary policy. This new operation is the interest rate corridor system.
• INTEREST RATE CORRIDOR SYSTEM

   is a system for guiding short-term market interest rates towards the central bank target. It consists of a rate at which the central bank lends to banks and a rate at which it takes deposits from them.
• STANDARD CORRIDOR SYSTEM

  the lending rate will be above the central bank target/policy rate (thereby forming an upper bound for short-term market rates), and the deposit rate will be below the central bank rate, thereby forming the lower bound.

   
• TRUE

  The IRC system is intended to help ensure that money market interest rates move within a reasonably close range around the BSP’s policy rate.