Monetary Policy - The Basics

Monetary Policy

The way the Government regulates the amount of money in circulation in a nation's economy in order to achieve Macroeconomic goals/aims.

Expansionary Monetary Policy

Aimed at increasing economic growth, and expanding economic activity.

Contractionary Monetary Policy

Aimed to bring down inflation - although it can increase unemployment and slow economic growth.

Open Market Operations

The sale and purchase of the Government securities and treasury bills by the central bank to influence money supply by manipulating interest rates.

Collateral

"An asset that a lender accepts as a security for a loan."

Reserve Requirements

The amount of funds at a bank must have on hand each night

Discount Rate

"Discount rate, also called rediscount rate/bank rate, is the interest rate charged by a central bank for loans of reserve funds to commercial banks and other financial intermediaries."

Inflation

Inflation refers to the rise in the prices of most goods and services of daily/common use as value of money falls.

Recession

A recession is a macroeconomic term that refers to a significant decline in general economic activity in a designated region for two consecutive quarters.

Interest Rates

The interest rate is the percentage of principal charged by the lender for the use of its money - The cost of borrowing money.

Price Stablity

Price Stability implies avoiding both prolonged inflation and deflation, can contributes to achieving high levels of economic activity and employment.