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Monetary Policy - Coggle Diagram
Monetary Policy
Objectives
Price Stability
Control inflation
Maintain purchasing power
Economic Growth
Stimulate economic activity
Encourage investment
Employment
Aim for full employment
Reduce unemployment rates
Financial Stability
Ensure stability of financial institutions
Prevent financial crises
Tools
Interest Rate Adjustments
Lowering rates to stimulate borrowing
Raising rates to control inflation
Open Market Operations
Buying and selling government securities
Impact on liquidity in the banking system
Reserve Requirements
Changing the amount banks must hold in reserve
Influence on lending capabilities
Quantitative Easing
Large-scale asset purchases
Aim to increase money supply and lower long-term interest rates
Effects
On Inflation
Relationship between money supply and price levels
Long-term vs. short-term effects
On Employment
Impact of interest rates on job creation
Trade-offs between inflation and unemployment (Phillips Curve)
On Economic Growth
Influence on consumer spending and business investment
Long-term growth prospects
Challenges and Limitations
Time Lags
Delays in the effects of policy changes
Difficulty in timing interventions
Global Influences
Impact of international markets and foreign policies
Exchange rates and capital flows
Public Expectations
Influence of consumer and business confidence
Importance of communication and transparency
Definition
Tools used by central banks to manage the economy
Influence on money supply and interest rates
Types
Expansionary Monetary Policy
Aims to increase money supply
Used during economic downturns
Contractionary Monetary Policy
Aims to decrease money supply
Used to combat inflation