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Monetary policy is the control of the quantity of money available in an economy and the channels by which new money is supplied. By managing the money supply, a central bank aims to influence macroeconomic factors including inflation, the rate of consumption, economic growth, and overall liquidity.
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(a) What are derivative instruments? (5 marks) (b) Explain the types of derivative instruments. (10 marks) (c) What are the advantages and disadvantages of using derivative instruments? (10 marks)
(a) Derivatives are financial instruments that derive their value in response to changes in interest rates, financial instrument prices, commodity prices, foreign exchange rates, credit risk and indices.(b) The most...
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Q. which policy you will use Easy-Monetary policy or Tight-Monetary policy
If The CPI and GDP deflator have risen 3 percent in the last six months.
Explain in some sentences
CPI and GDP deflator are the commonly used price indices in measuring inflation. The rise in CPI and GDP deflator by 3% in the past six months is an indication...
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An increase in the budget deficit is the result of: (2)
(a) Expansionary monetary policy;
(b) Contractionary monetary policy;
(c) Expansionary fiscal policy;
(d) Contractionary fiscal policy.
(c) Expansionary fiscal policy
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Suppose the central bank conducts a contractionary monetary policy by reducing her growth rate of the money supply. How does a tightening of monetary policy influence nominal interest rates?
Tight monetary policy reduces the quantity of money and credit below what it otherwise would have been and raises nominal interest rates.
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Explain that fiscal policy is less effective than monetary policy in a situation when investment is very interest elastic and money demand is very interest inelastic
If the LM curve is vertical, fiscal policy is absolutely ineffectual. It indicates that money demand is perfectly interest inelastic. Only the interest rate rises when the IS curve changes...
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Differentiate the fiscal and monetary policies.what are the effects of fiscal policy and monetary policy on short run equilibrium of the IS-LM model?
Fiscal policy influences the economy by controlling taxes and government spending. It impacts market of goods.On the other hand, monetary policy controls the money supply in the economy. Only the...
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Q.1.3 An increase in the budget deficit is the result of: (2) (1) Expansionary monetary policy; (2) Contractionary monetary policy; (3) Expansionary fiscal policy; (4) Contractionary fiscal policy.
(1) Expansionary fiscal policy
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a. Mention any 5 concepts used interchangeably with: i. Lending rate. ii. Strict monetary policy iii. Accommodative monetary policy
(i) Capacity, capital, collateral, conditions and character.(ii) The reserve requirement, open market operations, the discount rate, and interest on excess reserves.(iii) Interest rates, quantitative easing, money supply, Federal Reserve, and Federal funds rate.
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List the different types of contractionary monetary policies and discuss the effects that lead to change in money supply when each of those actions are taken (6)
Contractionary monetary policy is a strategy used by a nation’s central bank during booming growth periods to slow down the economy and control rising inflation.The Federal Reserve uses three main...
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<ol><li>Mention any 5 concepts used interchangeably with lending rate, strict monetary policy and accommodative monetary policy</li></ol>
These are the reserve requirement, open market operations, the discount rate, and interest on excess reserves. These tools can either help expand or contract economic growth. The Federal Reserve created...
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