Unit 15: Inflation, Unemployment & Monetary Policy

Question 1

Rising inflation

Answer 1

Increase in the inflation rate (general price level is increasing at an increasing rate)

Question 2

Policy used by governments to reduce amount of exports coming into the country

Answer 2

Protectionist policy

Question 3

Unexpected change in the supply side of the economy, characterized by a shift in the Phillips curve

Answer 3

Supply shock

Question 4

In monetary policy policy, the central bank will set a specific _____ interest rate (real/nominal)

Answer 4

Nominal. By doing this, the central bank actually aims for a particular real interest rate while taking into account expected inflation

Question 5

Policy interest rate

Answer 5

Interest rate set by the central bank which applies to banks which borrow base money from each other and the central bank

Question 6

Bank lending rate

Answer 6

Interest rate set by commercial banks who lend to firms and households

Question 7

Quantitative Easing

Answer 7

1. Central bank will buy bonds/financial assets
2. This increases their demand, pushing prices up. Due to this price increase, their is a higher yield on said bonds, so households have more money
3. This boosts spending