Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
16 Cards in this Set
- Front
- Back
|
Monetary Policy |
Use of interest rates and the money supply to control aggregate demand in the economy |
|
|
Money Supply |
Amount of money circulating in the economy |
|
|
Interest Rate |
Price paid to lenders for borrowed money |
|
|
Base Rate |
Rate of interest set by govt or federal bank for lending to other banks and influences all other rates |
|
|
Rate of Interest |
Price of borrowed money |
|
|
Mortgage |
Legal arrangement, borrow money to buy land or a house and pay money over a period of years |
|
|
Inflation : Monetary Policy |
Inflation is caused by money supply growing too quickly. How to reduce inflation Raise interest rate and borrowing will fail and money supply grows less quickly |
|
|
Unemployment : Monetary Policy |
Low interest rates Increase demand for loans Spending increases Increases demand Produce more More staff |
|
|
Economic Growth : Monetary Policy |
Eg to get out of recession, very low interest rates |
|
|
The Current Balance : Monetary Policy |
Reduce deficit : higher interest rates, lower demand and reduce spending |
|
|
SPICED |
Strong Pound Imports Cheap Exports Dear (Worsen current balance) |
|
|
Quantative Easing |
Buying of financial assets such as govt bonds from commercial bank. Results in a flow of money from central to commercial banks Commercial banks can make new loans and aggregate demand will increase |
|
|
Problem with Quantative Easing |
Can be inflationary, money does not actually exist. Other countries may get sick of trading for practically free Threat to currency Encourages debt |
|
|
Benefits with Quantative Easing |
Maximum employment Encourage lending Encourage borrowing Increase spending |
|
|
QE advantage : employment |
More money for businesses Produce more Hire more More jobs More disposable income More spending More GDP |
|
|
QE advantage : lending |
More money Lower rates Less likely to save Pay less back on loans Stimulate economy |
