Monetary Policy
Definition:
a policy that aims to control the total supply of money in the economy to try and achieve the government's economic objectives, in particular price stability
Objective
economic growth
price stability
low employment
interest rates
effect
a healthier balance of payment
increased
increased
reduced
reduced
increased spending, output and employment
reduced spending including spending on imports
reduced spending, so more price stability
increased spending, output and employment
objectives
the main tool is interest rates
in recent years quantitative easing has been used to put more money into the economy to encourage consumption and investment
general stuff
exam tips
When the exam question asks you to analyse, you should demonstrate the ability to present logical chains of reasoning based on knowledge and application. It involves the use of economic terms.
effects
Although we are treating spending, borrowing, saving and investment separately, there is consider overlap between them.