10.Monetary Policy (Part 1) Flashcards
What is the velocity of money?
The velocity of money is the number of times a currency note changes hands in a given period.
How is the velocity of money calculated?
The velocity of money is calculated by counting how many times a currency note changes hands.
What is velocity of money?
Velocity of money is the number of times a unit of currency is exchanged in a given period of time. It is calculated by dividing the nominal GDP by the money supply.
What is the formula for calculating velocity of money?
The formula for calculating velocity of money is:
Velocity of money = Nominal GDP / Money supply
What is monetary policy?
Monetary policy is the policy managed by the central bank to control the money supply in the economy and achieve specific goals like controlling inflation and promoting economic growth.
Apart from money supply, what else does monetary policy focus on?
Monetary policy not only focuses on the money supply but also on ensuring it’s available at the right time.
What are the objectives of monetary policy?
The objectives of monetary policy include price stability, balancing savings and investment, promoting economic growth, generating employment, ensuring financial market stability, and maintaining a stable exchange rate.
Why is equilibrium in the economy important?
Equilibrium in the economy, where aggregate demand matches aggregate supply and savings match investment, is important for a stable economy.
What is the impact of velocity of money on inflation?
Velocity of money has a positive impact on inflation. When velocity of money increases, it means that the same amount of money is being used to buy more goods and services. This can lead to inflation, as prices will need to rise in order to accommodate the increased demand.
What is the impact of velocity of money on economic growth?
Velocity of money has a positive impact on economic growth. When velocity of money increases, it means that the money supply is being used more efficiently. This can lead to economic growth, as businesses will have more money to invest and expand.
What are the tools of monetary policy?
The tools of monetary policy are the instruments that the central bank uses to control the money supply. The main tools of monetary policy are:
- Open market operations: The central bank buys and sells government bonds in the open market. This can increase or decrease the money supply.
- Reserve requirements: The central bank sets the percentage of deposits that banks must hold in reserve. This can also affect the money supply.
- Discount rate: The central bank sets the interest rate at which it lends money to banks. This can also affect the money supply.
What is the role of the central bank in monetary policy?
The central bank is responsible for maintaining price stability and promoting economic growth. It does this by using monetary policy to control the money supply.
What are the objectives of monetary policy?
The objectives of monetary policy are:
- Price stability: The central bank aims to keep inflation low and stable.
- Economic growth: The central bank aims to promote economic growth by keeping interest rates low and making credit available to businesses.
- Employment: The central bank aims to create jobs and reduce unemployment.
What are the challenges of monetary policy?
The challenges of monetary policy include:
- Forecasting the economy: The central bank needs to be able to forecast the economy in order to make effective monetary policy decisions.
- Controlling the money supply: The central bank cannot directly control the money supply. It can only influence the money supply by using its tools.
- The time lag between policy changes and their effects: There is a lag between when the central bank makes a policy change and when the effects of that change are felt in the economy.
What is one of the objectives of monetary policy related to employment?
One of the objectives of monetary policy is generating employment.
