That monetary policy involves the central bank taking action to influence interest rates, the supply of money and credit and the exchange rate
Monetary policy means the central bank uses three main tools to manage the economy. Those tools are interest rates, the supply of money and credit, and the exchange rate.
Real World
In 2022, the Bank of England raised the bank rate from 0.1% to over 5% to reduce borrowing, cool spending, and bring CPI inflation down from a peak of 11.1%.
Exam Focus
Distinguish clearly between the three channels — interest rates, money supply, and exchange rate — examiners penalise conflating them.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
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