ECON1001 Lecture Notes - Lecture 13: Open Market Operation, Monetarism, Classical Economics
Document Summary
Monetary policy: policies aimed at controlling the money supply to target interest rates in an economy, the twin goals of monetary policy are, economic growth with low unemployment, stable prices with moderate long-term interest rates. Interest rates affect the manner in which we borrow and consume and the way in which we save and invest: loose or tight monetary policy, expansionary monetary policy, used in times of economic downturn to boost aggregate demand. The fed sells bonds in open market operations to push the interest rate higher, slowing down or reducing aggregate demand: raises interest rates which leads to lower aggregate demand, shifting the, the long run: classical theory. Increasing the money supply by a set percentage each year at a level consistent with long-term price stability and each year at a level consistent with longterm price stability and economic growth. It is slow to correct severe economic shocks.
