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Monetary Policy, Screen Shot 2022-04-20 at 11.51.06 AM, This is the result…
Monetary Policy
Aims
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Low unemployment rate
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In April of 2019, the People's Bank of China (Chinese central bank) looked to solve the unemployment and recessionary economy after a surge in Covid cases induced a lockdown in many major Chinese cities causing a decrease in spending and the worst unemployment rates since the start of the pandemic in March 2020. The PBOC looked to implement expansionary monetary policy in the form of the "relending programme" a form of quantitative easing tool to provide funds for banks to lend to sectors which include the ones hit by the pandemic. The quantitative expansionary policy is estimated to lead to 1 trillion yuan ($157 Billion) in additional bank loans and is aimed to boost the economy and help it survive during this recessionary gap.
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Inflation targeting, in which the central bank sets an inflation target rate, ensures a low and steady rate of inflation (2 percent )
RWE
In March 2019 Pakistan's central bank raised its key rate for a sixth time to 10.75% from 10.25%, overall raised 5% in one year. This contractionary monetary policy came in response to theinflation rate accelerating to 8.2% in February, overshooting the central bank's average forecast range of 6.5R to 7.5% for the year following the increase in price of petrol due to the significant devaluation of the Pakistani rupee. The hopes of the monetary policy is to decrease aggregate demand and stabilize the inflationary gap by raising interest rates and decreasing the money supply.
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Strengths
There is no political involvement, which means there is no political process for change to take place. This might include measures that are politically unpopular.
There is no crowding out since interest rates have been decreased without the government borrowing much, which would otherwise push out private investment.
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The ability to make minor adjustments: It is more exact since it is a % target- fine Turing because of the speed and lack of political pressures
Limitations
Time lags: It's easy to put in place, but it might take a long time to see results in AD.
Ineffectiveness at low interest rates: As interest rates are reduced, they will eventually hit zero, leaving no possibility for additional reductions.
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Lower consumer and business confidence: Interest rates may be weaker, and consumption and investment may suffer as a result of lower consumer and business confidence, which is common during recessions.
What is it?
The CENTRAL BANK sets the base rate, also known as the prime rate or discount rate, which is used to implement monetary policy.
A bank that does not have profit as its primary goal. It is the government's bank, which is not always in the government's authority. It has complete influence over an economy's MONEY SUPPLY.
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A collection of government policies managing the supply of money and the level of interest rates in an economy is known as monetary policy.
Types of monetary policy
contractionary
Raising reserve requirements to reduce money supply (raising the reserve requirements money supply or money available to be loaned by private banks will decline)
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expansionary
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By lowering reserve requirements, the money supply becomes more accessible.
Reduced borrowing costs lead to increased consumption and investment, which leads to an increase in AD.
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This is the result of an expansionary monetary policy, in which the AD moves to the right, raising average prices while also raising actual output in the near term.
