MACRO - Chapter 7

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What do Central Banks do?

Changes the money supply and interest rates, aiming for an inflation control target that will achieve steady growth, full employment and stable prices
Monetary Policy

changing the supply of money and interest rates to achieve steady growth, full employment and price stability
Price Stability

When inflation rates are low enough to not influence peoples decisions
Inflation-control Target

range of inflation rates set a as a target by central bank as monetary policy objective
What percent does monetary policy aim for?

2 percent range measured by CPI
Overnight rate

interest rate banks charge each other for one day loans, they then determine all other interest rates
What does lower/higher interest rates mean?

Lower means more borrowing and spending with less saving, Higher means less borrowing and spending and more saving.
Are the interest rates high or low in a recessionary gap?

They are lower to increase borrowers
Open market operations

Buying and selling of government bonds on bond market
Prime rate

Interest rate on loans to lowest risk corporate borrowers
Quantitive Easing

flooding financial systems with money by buying risky bonds, mortgages and assets from banks.