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Monetary Policy ­ Revision Sheet
Controlling the macroeconomy through changes in monetary variables (e.g. money
supply or interest rates)
Policies that aim to influence economy's AD (Designed either to stabilise level of
output and employment or stabilise price level)

Prime Instrument = Interest Rate

Through the interest rate, monetary policy…

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Business Investment ­ Firms look at actual and expected interest rates when
deciding whether or not to invest in new capital equipment ­ A rise in short term
rates may dampen business confidence and lead to less investment

Exchange Rate - Higher UK interest rates may lead to the strengthening…

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Comments

izzy

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really helpful, thanks

davidsalter

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A 2 page summary of how monetary policy works. Useful for last minute revision.

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