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Monetary Policy - Coggle Diagram
Monetary Policy
Definition
Monetary Policy is a policy that aims to control the total supply of money in the economy
Major objective to keep a low stable rate of inflation (2%)
Monetary Policy Committee of BoE operates it
BoE uses bank rate to influence all other interest rates
Attempts to limit total demand for goods and services
Monetary Policy + Economic Objectives
Used to achieve following objectives: Economic growth, Low unemployment, Price Stability, Balance in the balance of payments
Economic Growth - Interest rates reduced causing increased spending, output and employment
Low unemployment - Interest rates reduced causing increased spending, output and employment
Price stability - Interest rates increased causing reduced spending, so more price stability
Healthier balance of payments - Interest rates increased causing reduced spending including spending on imports
Analysing how monetary policy affects growth, employment and price stability
Growth + employment
Borrowing by consumers rises
Borrowing by firms rises
Saving falls
Asset prices rise
Disposable incomes rise for households with mortgages
External value of the currency falls
Price Stability
Borrowing by consumers falls
Borrowing by firms falls
Saving rises
Asset prices fall
Disposable income for households with mortgages
External value of the currency rises