Scribd
Upload
18 views8 pages

Monetary Policies

The document discusses the role of central banks in implementing monetary policy by adjusting interest rates through changes in the money supply. It explains how interest rates affect consumption and investment spending, with higher rates leading to decreased borrowing and spending. Additionally, it covers inflation targeting, where central banks aim for a specific inflation rate, potentially sacrificing low unemployment in the process.

Uploaded by

tita rachmawati
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
18 views8 pages

Monetary Policies

The document discusses the role of central banks in implementing monetary policy by adjusting interest rates through changes in the money supply. It explains how interest rates affect consumption and investment spending, with higher rates leading to decreased borrowing and spending. Additionally, it covers inflation targeting, where central banks aim for a specific inflation rate, potentially sacrificing low unemployment in the process.

Uploaded by

tita rachmawati
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Monetary

Policies
We will discuss about…

The roles of a How interest Monetary policy and


Evaluating
central bank rates are short-term demand
management monetary policy
determined
Central Bank’s Role
Monetary policy is carried out by the central bank, which determines interest rates by changing
the money supply.
0
• How Interest
Rates are • Interest: payment for money that has been borrowed, over a certain time
Determined period
• Rate of interest: payment for borrowed money over a certain time period,
expressed as a percentage of the borrowed amount; the price" of money
services

You can simply impress your audience and add a unique zing
and appeal to your Presentations. Easy to change colors,
photos and Text. Get a modern PowerPoint Presentation that
is beautifully designed. You can simply impress your audience
and add a unique zing and appeal to your Presentations.
Get a modern PowerPoint Presentation that is beautifully
designed. You can simply impress your audience and add a
unique zing and appeal to your Presentations.

You can simply impress your audience and add a unique zing
and appeal to your Presentations.
Monetary policy and short-term demand
management

 Components of aggregate demand (AD): (C, I, G, X-M),


monetary policy can influence consumption spending (C) and
investment spending (I) by changing the money supply and
interest rates.
 Interest rates determine the cost of borrowing: the higher the
interest rate, the higher the cost of borrowing and the lower the
amount of consumption and investment spending financed by
borrowing.
 The lower the interest rate, the lower the cost of borrowing and
the higher the amount of consumption and investment spending
financed by borrowing.
Monetary policy and short-term demand
management
Inflation Targeting

 In some countries, rather than focus on the goals of low


unemployment and low and stable inflation, central banks
attempt to achieve a target rate of inflation that usually varies
between 1.5% and 2.5%, regardless of the rate of
unemployment.

 Based on forecasts of inflation, monetary policy is used to


achieve the inflation target: contractionary policy is used if
forecasted inflation is higher than the target, and expansionary
policy if forecasted inflation is lower than the target. Whereas
inflation targeting usually permits the achievement of a low and
stable inflation rate, this may sometimes be achieved at the
cost of high unemployment, as unemployment is ignored when
the central bank makes its policy decisions.
Evaluating Monetary Policy

You might also like