- Describe the role of central banks as regulators of commercial banks and bankers to governments.
- Explain that central banks are usually made responsible for interest rates and exchange rates in order to achieve macroeconomic objectives.
- Explain, using a demand and supply of money diagram, how equilibrium interest rates are determined, outlining the role of the central bank in influencing the supply of money.
- Explain how changes in interest rates can influence the level of aggregate demand in an economy.
- Describe the mechanism through which easy (expansionary) monetary policy can help an economy close a deflationary (recessionary) gap.
- Construct a diagram to show the potential effects of easy (expansionary) monetary policy, outlining the importance of the shape of the aggregate supply curve.
- Describe the mechanism through which tight (contractionary) monetary policy can help an economy close an inflationary gap.
- Construct a diagram to show the potential effects of tight (contractionary) monetary policy, outlining the importance of the shape of the aggregate supply curve.
- Explain that central banks of certain countries, rather than focusing on the maintenance of both full employment and a low rate of inflation, are guided in their monetary policy by the objective to achieve an explicit or implicit inflation rate target.
- Evaluate the effectiveness of monetary policy through consideration of factors including the independence of the central bank, the ability to adjust interest rates incrementally, the ability to implement changes in interest rates relatively quickly, time lags, limited effectiveness in increasing aggregate demand if the economy is in deep recession and conflict among government economic objectives
You'll be given a packet to work through these objectives.
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