Overview of Monetary Policy and Central Banking in the European Context

These flashcards cover key concepts related to the monetary policy and structure of the European system of central banks based on the lecture notes provided.

What is the European System of Central Banks (ESCB)?

The ESCB is composed of 27 EU states, which are obligated to adopt the Euro after meeting convergence criteria.

How many countries are part of the Eurozone?

As of now, there are 20 Eurozone countries that have adopted the Euro.

What are convergence criteria?

These are economic and legal conditions that EU states must satisfy before adopting the Euro as their currency.

What is the role of national central banks within the ESCB?

Each national central bank (NZB) sends a representative to the Governing Council of the European Central Bank (ECB) if the country is a member of the Eurozone.

Describe the status of Denmark regarding the Euro adoption.

Denmark has a special status allowing it to decide whether to adopt the Euro upon meeting the convergence criteria.

Identify the countries that adopted the Euro in 1999.

Countries that adopted the Euro in 1999 include Belgium, Germany, Luxembourg, France, Spain, Portugal, the Netherlands, Austria, Finland, and Italy.

What was the inflation rate indication for the given example of bread prices?

If a buyer could buy five buns for one Euro at one point and only four at a later time, the purchasing power of money has decreased due to inflation.

What does a rising price index signify?

A rising price index indicates that the prices for goods and services typically purchased by households are increasing over time.

What is the primary goal of the European Central Bank (ECB)?

To maintain price stability and control inflation within the Eurozone.

Name two types of monetary policy tools used by the ECB.

Open market operations and minimum reserves.

Explain the concept of 'inflation.'

Inflation refers to the general, prolonged increase in prices of goods and services, leading to a decrease in purchasing power.

What are the consequences of deflation?

Deflation leads to a decrease in price levels, which may cause reduced consumer spending, lower business revenues, and increased unemployment.

What is the purpose of the minimum reserve policy?

The minimum reserve policy requires banks to hold a specific percentage of their deposits as reserves, controlling their ability to lend money.

How does the ECB influence interest rates?

Through adjustments to the main refinancing operations rate, affecting borrowing and lending rates across the Eurozone.

What does the term 'Deflationaries' refer to?

Economic factors or policies that contribute to or lead to a situation of deflation in the economy.

What is 'real wage growth'?

Real wage growth measures the increase in wages adjusted for inflation, indicating the true purchasing power of income.

What is the relationship between nominal wages and inflation?

Nominal wages may increase, but if inflation rises at a higher rate, the purchasing power and real wages may actually decline.

Why is it essential to adjust consumer price indices over time?

Consumer price indices must be adjusted regularly to reflect changes in consumption patterns and the introduction of new goods.

Describe the main impact of monetary policy on the economy.

Monetary policy influences inflation rates, money supply, and overall economic activity by adjusting interest rates and liquidity.