Monetary Policy Flashcards
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9 Terms
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Monetary Policy
A policy that aims to control the total supply of money in the economy to try to achieve the government’s economic objectives, particularly price stability.
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Inflation target
2% + - 1% CPI
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Aggregate demand formula
C + I + G + (X - M)
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Bank/Base interest rate
The base rate of interest set by the Bank of England
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Price stability
When average consumer prices for goods and services are constant over time, or are rising at a low and predictable rate
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“Big ticket items”
Large purchases such as cars or computers
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Contractionary monetary policy
Where the Bank Of England raises interest rates to combat rising inflation
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Expansionary monetary policy
Where the Bank Of England lowers interest rates to combat falling inflation
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Quantitative Easing
Where the Bank Of England makes more money available for financial institutions to lend to households and firms