Persistent fall in the general price of goods and services, negative inflation
2 of 15
Depreciation
A fall in the market value of one exchange rate against another in a floating currency system (price determined via supply and demand factors)
3 of 15
Expansionary Policy
Cuts in interest rates or increased supply of credit designed to increase the growth of AD
4 of 15
Real interest rate
Adjusted with inflation
5 of 15
Fine tuning
small/gradual changes in interest rates designed to achieve a desired macro policy outcome (macro policy = affects the whole country)
6 of 15
Hot money
Money that flows freely/quickly around the world looking to earn the best rate of return
7 of 15
Liquidity trap
When a period of low interest rates fails to stimulate AD
8 of 15
Quantitative easing
Introduction of new money into the national supply by a central bank
9 of 15
Central bank
Responsible for operating monetary policy and maintaining financial stability
10 of 15
Devaluation
Reduction in the external value of a currency in a fixed exchange rate system
11 of 15
Advantages of Low interest rates
- less incentive to save more spending, consumption more, increased AD- stimulates growth
- reduced mortgage interest rates increase disposable income of home owners and may be more affordable for first time buyers
- reduce cost of external finance to bo
12 of 15
Advantages of LOW INTEREST RATES
- help keep exchange rate low improves price competitiveness of exports could lead to higher AD
- Lower risk of deflation (GFC etc)
- govt can borrow money cheaply when financing their own investment spending
13 of 15
Risks of Low interest rates
- savers = loss of income if real interest rates become negative
- cheap mortgages = higher properties price makes (less affordable) renting more costly too
-depends on credit risk if bank allows to borrow
14 of 15
Risks of LOW INTEREST RATES
- excessive amounts of consumer debt, damaging when an economy hits recession
- economy more dependent on low rate for growth
15 of 15
Other cards in this set
Card 2
Front
Deflation
Back
Persistent fall in the general price of goods and services, negative inflation
Comments
No comments have yet been made