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Monetary Policy (Intro (Money Supply (Notes and coins constitute very…

- - - - Appreciate -> :arrow_down:BOT -> :arrow_down:AD
    - - Reliant on imports, ensure able to import necessities and raw materials for production of exports that are P competitive and consumption at P levels that are not too high
      - Gradual and modest appreciation to :arrow_down:import P in S$ and :arrow_down:COP, :arrow_up:SRAS and :arrow_down:general P level, P stability
    - - Higher expectations of growth & profitability
        Higher returns when profits converted back to home currency
        :arrow_up:FDI improves financial account and BOP
      - Too strong currency deters investors as more of local currency needed to buy S$, COP:arrow_up:
    - - Pressure of high import P eases, less need to maintain strong currency to reduce import-P push inflation
      - world economy slows, SG exports D:arrow_down: as importers income:arrow_down:
      - SG exports cheaper in foreign currencies, P elastic D, QD:arrow_up:>proportionately & export revenue:arrow_up:, NI:arrow_up: by multiplier
      - Import P:arrow_up: causing import P push inflation hence may be zero appreciation instead
    - - SG is international financial centre -> small changes in difference between domestic and foreign rates causes large and quick capital flow
      - Eg. domestic significantly higher than other large economies, short-term capital inflow as SG has no capital control.
        
        Foreigners buy S$ to save with SG banks, banks have more liquidity, bank credit S:arrow_up: and interest rate:arrow_down: until same as global rate
        
        No more incentive to transfer funds into SG
    - - Adverse impact on trade
      - Due to short term capital flows