inflation & monetary policy

What is inflation?

A sustained increase in the general price level of goods and services in an economy over time.

What is demand-pull inflation?

A sustained increase in the general price level caused by an increase in AD, particularly when the economy is operating near full employment.

What is cost-push inflation?

Inflation caused by rising prices of imported consumer goods, raw materials or intermediate inputs.

What is price stability?

A situation where inflation is low and stable, avoiding large fluctuations in the general price level.

What is monetary policy?

The use of policy instruments by a central bank to influence macroeconomic variables such as inflation, economic growth and employment.

What is contractionary monetary policy?

A policy aimed at reducing AD to control inflation, typically through higher interest rates or tighter monetary conditions.

What is expansionary monetary policy?

A type of monetary policy aimed at increasing AD to stimulate economic growth and reduce cyclical unemployment, typically through lower interest rates or looser monetary conditions.

What is interest rate policy?

A monetary policy approach where the central bank adjusts interest rates to influence borrowing, saving, consumption and investment.

What is exchange rate-centred monetary policy?

A monetary policy framework where the central bank manages the exchange rate to influence domestic inflation and economic activity.

What is capital mobility?

The ease with which financial capital can move between countries in response to differences in expected returns.