The Economics of Money, Banking and Financial Markets (11th Edition) (The Pearson Series in Economics)
The Economics of Money, Banking and Financial Markets (11th Edition) (The Pearson Series in Economics)
11th Edition
ISBN: 9780133836790
Author: Frederic S. Mishkin
Publisher: PEARSON
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Chapter 16, Problem 14Q
To determine

Elimination of asset price bubble through the monetary policy

Introduction:

Monetary policy is used by the central bank to control the liquidity of money in the economy to bring it to a stable condition. This is done through management of interest rate, marginal requirements, and the money supply. Objectives of a monetary policy are high employment and output stability, economic growth, stability of financial markets, interest rate stability, and stability in foreign exchange markets.

Asset price bubble is defined as an increase in prices of securities or other assets so rapidly and exceeds valuations of assets by intrinsic value. Bubbles can damage the wider part of economy, especially if it is a key market, such as housing or the stock market.

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