Topic 9 · macro
Monetary Policy
The central bank manages the amount of money and the interest rate to keep the economy in balance.
Who and with what
The central bank regulates the money supply and the key rate. This affects loans, demand and inflation.
How it works
A lower rate → cheaper loans → demand and investment rise (expansionary). A higher rate → curbs demand and inflation (contractionary).
The goal
Usually — stable low inflation and support for employment. Tools: the rate, open-market operations, reserve requirements.
🎯 Now possible
- explain the role of the central bank
- link the rate to demand and inflation
- tell expansionary from contractionary policy
Cheat sheet
Rate↓ → cheaper loans → demand↑
Rate↑ → demand and inflation↓
The central bank aims for stable inflation
Tools: the rate, reserves, market operations
Practice on this topic
Where to read more: Мэнкью — гл. 30, 35Макконнелл–Брю — макроэкономика