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Monetary policy - Coggle Diagram
Monetary policy
tools for changing the money supply
changing the discount rate
lower DR to let bank set a lower interest rate to borrowers.
buying to selling bonds
to reduce the MS
changing the interest rate
reserve requirement
effect of monetary policy on AD component
Discourage AD
increase the money supply and decrease IR can expand private I
Limit the money supply and increase IR to reduce I and C and decrease AD.
affect C &I with change in IR (indirectly)
if IR decrease, the firm will likely to borrow money from bank, and the investment will increase too.
IR will affect C of high-price goods.
The money supply
2:
less accessible money
all the money that can easily be removed from bank
currency
1:
demand deposit
checkable deposit
Expansionary Monetary Policy
buy bonds on the open market
lower the reserve ratio
lower the discount rate
contractionary Monetary policy
Central bank will start MP If there is an inflation caused by excess AD, and CB want to contract AD by reducing I and C, and reduce the IR
bonds on the open market
raise the reserve ratio
raise the discount rate
