Tight monetary policy implies the Central Bank (or authority in charge of Monetary Policy) is seeking to reduce the demand for money and limit the pace of economic expansion. Usually, this involves increasing interest rates. The aim of tight monetary policy is usually to reduce inflation. With higher interest rates there will be a slowdown …
Readers Question: When considering national economic policy government must accept that there is a trade-off between inflation and unemployment. Discuss. National Economic Policy will be concerned with these main macro economic objectives Sustained and sustainable economic growth Low Unemployment Low inflation (inflation target often 2%) Low current account deficit (satisfactory balance of payments) Stable Exchange …
Expansionary monetary policy aims to increase aggregate demand and economic growth in the economy. Expansionary monetary policy involves cutting interest rates or increasing the money supply to boost economic activity. It could also be termed a ‘loosening of monetary policy’. It is the opposite of ‘tight’ monetary policy. When to pursue expansionary monetary policy The …
What factors should we consider when setting monetary policy? Basics of monetary policy If inflation is above the target and economic growth too fast, the Bank will likely increase interest rates. Higher interest rates increase the cost of borrowing and reduce investment/consumer spending – leading to a lower rate of economic growth. See more at …
Fiscal responsibility implies a government pursues the appropriate level of government spending and tax to: Maintain sustainable public finances. Ensure fiscal policy aids the optimal rate of economic growth. Maintain appropriate levels of public investment. The UK chancellor has proposed a fiscal charter – which requires the government to run a budget surplus within three …
Readers Question: I only recently discovered your site, which is spectacular, and have been reading every article since then. However, I found that two of your articles are contradicting. In your article “Problems of Deflation” you state that the current monetary policy of the EU is tight due to 0.5% inflation and interest rates. In …
Tight monetary policy implies the Central Bank is trying to reduce the demand for money and limit the pace of economic expansion. A tightening of monetary policy, could involve an increase in interest rates. – Higher interest rates increase the cost of borrowing and discourage investment and consumer spending. A tightening of monetary policy would …
Readers Questions: Could you not also argue not that the Euro is a failure but that it’s members/ECB are pursuing the wrong policy? Predictions of the death of the Euro seem to have been much exaggerated & surely Europe has the potential to be a world economic superpower to rival the US or China? It …