Monetary Policy Flashcards
Definition
Changes to interest rates. The money supply and exchange rates by the central bank to influence AD
Expansionary policies
Increase inflation an growth Reduce unemployment
Contractionary monetary policy
Reduce inflation. Reduce excess debt and promote saving. Reduce current count deficit.
Prevent asset/ credit bubbles
Expansionary transmission mechanisms
Credit rate, saving rates and mortgage rates down
Weaker exchange rates
Expansionary monetary policy and LRAS
Incrstnent
Cons of expansionary policy
Demand pull inflation - current account deficit
Liquidity trap - cut become useless after a point
Impact on savers - safety net
Tim lags
Evaluation of expanionary monetary policy
I’ve of output go
Confidence c or b
Banks liking need to lend or ass on
Size of cut
Pros of confectionary monetary policy
Lowe inflation
Discourage debt - reduces chance of systemic risk
More sustaonable borrowing - reduces chance of bubbles
Encourage saving - LRAS investment
More affordable housing
Reduce CA deficit
Flexibility for expansionary monetary policy
Cons of contractionary monetary policy
Lower growth
High unemployment (1sr 2 shocks)
Impact on indebted
Reduce investment
Worsening ca deficit Strengthening er
Supply side policies def
Policies designed o increase productive capacity of the economy. Shifting LRAS right
If successful acheive 4 macro aims
3 types of ssp market based
Tax reforms - lower income / corp tax
Labour market reform - reduc benefits , min wage n trade union powe
Competition policy - privatisation deregulation trade liberalisation
Interventionist SSP. 3
Gov pending on education / training
Gov spending on infrastructure- easier to sell an access raw materials an goods
Subsidies to promote inveTyne by
Evaluate ssp
No guarantee
Cost
Is afs
Negative stakeholder impact - employer welfare
Output go - useful in book notvrecession
Target specific ss problem
