Revision NotesExam QuestionsFlashcardsPast Papers
IGCSEEconomicsCambridge (CIE)Flashcards4. Government & the Macroeconomy4.4 Monetary Policy

4.4 Monetary Policy (Cambridge (CIE) IGCSE Economics)

Flashcards

1/11

0Still learning

Know0

Enjoying Flashcards?
Tell us what you think

Cards in this collection (11)

  • What is monetary policy?

    Monetary policy involves adjusting the money supply to influence total (aggregate) demand in the economy.

  • What does the term money supply mean?

    The money supply is the amount of money in an economy at any given moment in time, consisting of coins, banknotes, bank deposits, and central bank reserves.

  • Which institution is responsible for setting monetary policy?

    The central bank in each economy is responsible for setting monetary policy.

  • What is the main instrument of monetary policy?

    Interest rates are the main instrument of monetary policy, where incremental adjustments are made to influence the economy.

  • Define the term quantitative easing (QE).

    Quantitative easing (QE) is an instrument of monetary policy where the central bank creates new money and uses it to buy assets like bonds, injecting money into the economy.

  • What are the tools of expansionary monetary policy?

    Expansionary monetary policy aims to generate further economic growth through measures like:

    • Reducing interest rates

    • Increasing QE

    • Depreciating the exchange rate so as to increase exports

  • True or False?

    Contractionary monetary policy includes decreasing interest rates, decreasing/stopping QE, or appreciating the exchange rate.

    False.

    Contractionary monetary policy includes increasing interest rates, decreasing/stopping QE, or appreciating the exchange rate.

  • True or False?

    Monetary policy can influence components of total demand.

    True.

    Changes to monetary policy can influence components of total demand, such as household consumption, firm investment, exports, and imports.

  • What is the formula for calculating total demand?

    Formula.

    Total (aggregate) demand = household consumption (C) + firm investment (I) + government spending (G) + exports (X) - imports (M)

  • How can increasing interest rates impact the economy?

    Increasing interest rates can:

    • Reduce consumption and investment

    • Appreciate the exchange rate (making exports more expensive and imports cheaper)

    • Slow economic growth

    • Ease inflation

    • Possibly increase unemployment

  • State a strength of monetary policy.

    A strength of monetary policy is that the central bank operates independently of the government and can consider the long-term outlook.

Previous:4.3 Fiscal PolicyNext:4.5 Supply-side Policy

    1. Topic 1

      1.1 The Nature of the Economic Problem

    2. Topic 2

      1.2 The Factors of Production

    3. Topic 3

      1.3 Opportunity Cost

    4. Topic 4

      1.4 Production Possibility Curves

    1. Topic 1

      2.1 Microeconomics & Macroeconomics

    2. Topic 2

      2.2 The Role of Markets in Allocating Resources

    3. Topic 3

      2.3 Demand

    4. Topic 4

      2.4 Supply

    5. Topic 5

      2.5 Price Determination

    6. Topic 6

      2.6 Price Changes

    7. Topic 7

      2.7 Price Elasticity of Demand (PED)

    8. Topic 8

      2.8 Price Elasticity of Supply (PES)

    9. Topic 9

      2.9 Market Economic System

    10. Topic 10

      2.10 Market Failure

    11. Topic 11

      2.11 Mixed Economic System

    1. Topic 1

      3.1 Money & Banking

    2. Topic 2

      3.2 Households

    3. Topic 3

      3.3. Workers

    4. Topic 4

      3.4 Trade Unions

    5. Topic 5

      3.5 Firms

    6. Topic 6

      3.6 Firms & Production

    7. Topic 7

      3.7 Firms’ Costs, Revenue & Objectives

    8. Topic 8

      3.8 Market Structure

    1. Topic 1

      4.1 The Role of Government

    2. Topic 2

      4.2 The Macroeconomic Aims of Government

    3. Topic 3

      4.3 Fiscal Policy

    4. Topic 4

      4.4 Monetary Policy

    5. Topic 5

      4.5 Supply-side Policy

    6. Topic 6

      4.6 Economic Growth

    7. Topic 7

      4.7 Employment & Unemployment

    8. Topic 8

      4.8 Inflation & Deflation

    1. Topic 1

      5.1 Living Standards

    2. Topic 2

      5.2 Poverty

    3. Topic 3

      5.3 Population

    4. Topic 4

      5.4 Differences in Economic Development

    1. Topic 1

      6.1 International Specialisation

    2. Topic 2

      6.2 Globalisation, Free Trade & Protection

    3. Topic 3

      6.3 Foreign Exchange Rates

    4. Topic 4

      6.4 Current Account of Balance of Payments