The effectiveness of monetary policy depends on how easy it is for changes in the money supply to change interest rates. By changing interest rates, monetary policy affects investment spending and the aggregate demand curve. The economies of Albenia and Brittania have very different money demand curves, as shown in the accompanying diagram. In which economy, changes in the money supply will be a more effective policy tool? Why?
Monetary Policy and Equation of Exchange
The monetary policy has been defined as the policy that is used by the Federal Reserve (the central bank of the US) or the central bank (the central bank of India is RBI) along with the use of the supply of money to accomplish certain macroeconomic policies. Monetary policy is a supply-side macroeconomic policy that supervises the growth rate and money supply in the economy.
Monetary Economics
As from the name, it is very evident that monetary economics deals with the monetary theory of economics. Therefore, we can say that monetary economics, is that part of economics that provides us with the idea or notion of analyzing money as a holding with its function, which acts as the medium of exchange, the store of value through which the buying and selling are done and also the unit of account. It also helps in formulating the framework of the monetary policy of a bank in an economy which ultimately results in the welfare of the people residing in that particular economy. The monetary policy of an economy also helps to analyze and evaluate the financial health of it.
The effectiveness of
money supply to change interest rates. By changing interest rates, monetary policy
affects investment spending and the aggregate
Albenia and Brittania
have very different
money demand
curves, as shown in
the accompanying
diagram. In which
economy, changes in
the money supply will
be a more effective
policy tool? Why?
Don,t copy from anywher . do answer step by step. Answer must be correct.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 1 images
