Unit 4

Front

What is a monetary policy?

Back

A central bank's actions and communications to manage the money supply

Front

What are objectives of monetary policy?

Back

• - Manage inflation

• - Reduce unemployment

• - Promote moderate long-terms interest rate

Front

Under what circumstances should monetary policy expansionary?

Back

Expansionary monetary policy is used when the economy grows too slowly or unemployment is high. The centre bank increases money supply by lowering interest rate, reducing reserve requiment or buying government bonds, thereby boosting aggrerate demand, growth, and job, as long as inflation under control

Front

Under what circumstances should monetary policy contractionary?

Back

Used to cool an overheating economy

Front

What are 3 tools of MP?

Back

• - Reserve requiment

• - Discount rate

• - Open market operation - primary tool

Front

What should central bank do when central bank wants to increase aggregate demand?

Back

When the central bank wants to increase aggrerate demand, it should adopt expansionary policy by lowering interest rates, reducing reserve requiment, or buying gov bonds to increase the money supply and stimulate spending and investment.

Front

What should central bank do to slow down overheating economy?

Back

raising reserve requiment

increasing discount rate

selling bonds