Monetary Policy

PART 2: Monetary Policy Chapters 12:250-252, 256-259 & 17:373-374

State Bank of Vietnam ,[object Object],[object Object],[object Object],[object Object]

Contd… ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Monetary Policy ,[object Object],[object Object],[object Object],[object Object]

External Balance ,[object Object],[object Object],[object Object]

External Balance r M s0 M D M 0 r 0 M p AD 0 Y 0 p 0 RGDP AS D FX0 Quantity Exchange rate e 0 S AUD0

External Balance r M 0 M s0 M D r 0 M p Y 0 p 0 RGDP AS AD 0 Quantity Exchange rate S AUD0 e 0 D FX0

Inflation ,[object Object],[object Object]

Internal Balance ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Open Market Operations ,[object Object]

Open Market Operations ,[object Object],[object Object]

Internal Balance – Contractionary Policy A policy aimed at increasing interest rates and to restrict AD D AUD0 Quantity Exchange rate S AUD e 0 Q 0 r M 0 M s0 M D r 1 r 0 M p Y 0 p 0 RGDP AS AD 0

Internal Balance – Expansionary Policy Policy aimed at reducing interest rates and raising the level of AD. Quantity Exchange rate e 0 Q 0 D AUD0 r M s0 M D M 0 r 0 M p AD 0 Y 0 p 0 RGDP AS S AUD0

Monetary Policy Effectiveness ,[object Object],[object Object],[object Object],[object Object]

Application Question 11 Suppose you are the monetary policy adviser for the government. The economy is experiencing a large and prolonged inflationary trend. What change in open market operations would you recommend?

Revision 9 ,[object Object],[object Object],[object Object],[object Object],Questions for Review: Problems and Applications: Chapter 12: 4-5, 7 Chapter 12: 8, 10 Chapter 17: 1, 4-5

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Monetary Policy

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