10 ~ Monetary Policy

Question	Answer
What is MP?	manipulating the money supply in order to achieve economic objectives (NOT JUST IR)
MP diagram for expansionary MP	↓ir = ↑C, ↑I = PME = ↑AD ↓ir = ↑I = ↑SRAS ↓ir = ↑I = ↑LRAS ↓ir = ↓reward of saving, ↓cost of borrowing = ↑C,↑I = ↑AD = ↑GDP ↑QE/AP = ↑MS = ↑C,↑I = ↑AD = ↑GDP
What is bad about MP? (4)	time lags (18 moths to 2 years) magnitude (size of change has relative effect) not ceteris paribus ↓ir may not get passed on to consumers
What is QE/AP?	↑MS to stimulate AD
How does QE/AP work?	bank creates money to buy bonds from firms (if they buy lots then ↑D = ↑P so there will be less interest) this reduces ir (↓reward of saving and cost of borrowing) leading businesses and people to borrow more so they spend more and create jobs to boost the economy

Resource summary

	Created by Tara Pugal about 8 years ago