Course review
Review each learning objective in this topic, then open its concept explanation or question set.
Learning objective
• Monetary policy is central bank control of money supply and interest rates • Goals include low stable inflation, low unemployment, reduced business cycle fluctuations, long-term growth conditions, and external balance
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Learning objective
• Commercial banks create money through lending • Central bank tools include open market operations, minimum reserve requirements, base or discount rate changes, and quantitative easing
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Learning objective
• Money demand and money supply determine equilibrium interest rates • Diagram [HL]: equilibrium interest rate in the money market
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Learning objective
• Nominal interest rates are not adjusted for inflation • Real interest rates adjust nominal rates for inflation • Calculation: real interest rate from data
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Learning objective
• Expansionary monetary policy can close deflationary or recessionary gaps • Contractionary monetary policy can close inflationary gaps • Diagram: AD/AS showing expansionary and contractionary monetary policy
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Learning objective
• Constraints include near-zero interest rates and low consumer or business confidence • Strengths include incremental adjustment, flexibility, reversibility, and short time lags • Evaluation considers effects on growth, unemployment, and price stability
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