Monetary policy (OCR A-Level Economics): Flashcards
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Monetary Policy
Monetary Policy
Central banks alter money supply, exchange rates, and interest rates to influence economy
Symmetric Inflation Targeting
Symmetric Inflation Targeting
Central bank acts when inflation above OR below target
Asymmetric Inflation Targeting
Asymmetric Inflation Targeting
Central bank acts only when inflation rises above target
Liquidity Trap
Liquidity Trap
Rate cuts have little effect on AD as agents prefer holding liquid assets
Quantitative Easing (QE)
Quantitative Easing (QE)
Central bank prints money to buy bonds, boost money supply and lower interest rates
Effect of higher interest rates on consumer spending
Effect of higher interest rates on consumer spending
Reduces consumer spending
Effect of lower interest rates on business investment
Effect of lower interest rates on business investment
Increases business investment
Effect of higher interest rates on inflation
Effect of higher interest rates on inflation
Reduces inflation by decreasing demand
Effect of lower interest rates on AD
Effect of lower interest rates on AD
Shifts AD right
Why is money supply curve vertical?
Why is money supply curve vertical?
Controlled by central bank, fixed at any given point
Common inflation rate target
Common inflation rate target
Around 2%
QE asset purchases include
QE asset purchases include
Government bonds, corporate bonds, and mortgage-backed securities
Currency appreciation
Currency appreciation
Currency value rises relative to another currency
Currency depreciation effect on exports/imports
Currency depreciation effect on exports/imports
Exports cheaper, imports more expensive
SPICED acronym
SPICED acronym
Strong Pound Imports Cheap Exports Dear