Monetary policy is a type of demand-side policy, as it helps the government achieves its macroeconomic objectives by changing AD. The IB Diploma Programme economics course emphasizes the economic theories of microeconomics, which deal with economic variables affecting individuals, firms and markets, and the economic … AN EVALUATION OF MONETARY POLICIES IN NIGERIA ( A CASE STUDY OF CENTRAL BANK OF NIGERIA) INTRODUCTION. For the last decade or so, changes to Bank Rate have not been as effective as they had been in the past. ACTIVITY 7: VIDEO - UNCONVENTIONAL MONETARY POLICY. Small time … A decrease in interest rates is a common response to a … Unsustainable fiscal deficits and public debt levels … If you are doing AQA Economics then download this AQA-style data response. Please advise your students which is the most appropriate for them, especially if you follow a different awarding body specification. Unresponsive to change in interest rates: the demand for funds might be unresponsive if it is interest inelastic, meaning that a change in interest will have relatively little impact on the AD. Examiners should be aware that candidates may take a different approach which, if appropriate, should be rewarded. The evaluation of monetary system. The Bank of England has produced a number of reports which aim to compare and contrast different approaches to monetary policy. Boston Spa, Monetary Policy - Evaluation. The government may issue a large number of these to the commercial banks to reduce the money supply and interest rates. Contractionary monetary policy is the type of economic policy that is basically used to deal with inflation and it also involves minimizing the fund’s supply in order to bring an enhancement in the cost of … In this online lesson, we cover some of the key approaches for evaluating the effectiveness of monetary policy. All students preparing to sit A-Level Economics exams in summer 2021. Category: Economics, IBDP. ACTIVITY 1: VIDEO - REVIEW OF THE TYPES OF MACRO POLICY. Contractionary/Deflationary/Tight monetary policy. 2.5 Monetary policy: Interest rates . The total demand for money is inversely related to the rate of interest. ACTIVITY 3: GAME - MULTIPLE CHOICE QUESTIONS. IB Macroeconomics HL&SL. … The role of supply side policy … We also provide an overview of the main redistributive effects of changes in the stance of monetary policy. Speed: monetary policy can be enforced far more quickly than fiscal policy. If you are doing Edexcel Economics, then download this Edexcel-style data response. On the 2nd page, you will find a series of statements regarding inflation targeting as a monetary policy. You may want to take a look at the lesson introducing monetary policy and the lesson for quantitative easing first. The difference between monetary and fiscal policy – Monetary policy has a similar aim to fiscal policy but involves changing interest rates and other monetary … Reserve requirement: the central bank controls the amount of money that the commercial banks have to keep on deposit to meet the needs of their customers, in the UK it is 20% of the customer’s savings. Expansionary fiscal policy – increasing government expenditure and/or decreasing taxes to increase aggregate demand. It depends on the risk involved for the lender, as well as the base rate. 4. Sale and purchase of government bonds: a bond is an iou issued by the government in return and so represents a loan to the government. When you check out the IB Economics guide, it clearly states in the evaluation of monetary policy part of the syllabus content (top of p. 55) that the independence of the central bank (from the government) is an important advantage of monetary policy… Check your knowledge in this quick review video. The central bank usually controls the money supply, such as … Fiscal policy– it is the use of government expenditure and tax rates to influence aggregate demand. Increase investment, as borrowing to fund it is less expensive. Quick implementation. If the base rate decreases, commercial banks lower their interest rates so loans are less expensive and with more loans the money supply increases and interest rates across the whole economy falls. Some are interactive game-based activities, designed to test your understanding and application of monetary policy. Interest rates as a tool of monetary policies. The interest rate on your credit card falls/increases and that might change your consumption right away.) In this Higher or Lower game, build your knowledge of how different economies approach inflation targeting. 7 . Conclusion (75 words) – concludes your main ideas in 2-3 sentences. before elections they might like to decrease interest rates to inflate growth figures and take the credit) 2. You can follow this up with a slightly more in-depth explanation of inflation targeting from the IMF here. It cold be seen that money policy … We anticipate that the "core" of the lesson would take around one hour, with an extra 90 minutes for the written tasks. Many economists argue that altering exchange rates … Contractionary fiscal policy – decreasing government expenditure and/or increasing taxes to decrease aggregate demand. ACTIVITY 2: VIDEO - MONETARY POLICY KEY TERMS. She is also a Senior Examiner. When the policy rate is below the neutral rate, the monetary policy is expansionary. The central bank usually controls the money supply, such as the UK’s Bank of England. ACTIVITY 4: VIDEO - BREAKDOWN OF THE TRANSMISSION MECHANISM. ACTIVITY 5: READING AND THINKING TIME - INFLATION TARGETS. Next, take a look at this article from the Federal Reserve Bank of San Franciscoon the pros and cons of inflation targeting. Exam boards: AQA, Edexcel, OCR, IB, Eduqas, WJEC. More specifically, the study sought to assess monetary policy and economic growth in Nigeria. Evaluation of monetary policy LS23 6AD, Tel: +44 0844 800 0085 2. Evaluating the Effectiveness of Monetary Policy During Recessions. Inflation targeting: the central banks of certain countries, rather than focusing on the maintenance of both full employment and a low rate of inflation, are guided in their monetary policy by the objective to achieve an explicit or implicit inflation rate target. Inflation targeting and evaluation of monetary policy . For instance NatWest will have an interest rate from mortgages above the base rate, but if the base rate, which they are charged, increases then they will also increase the interest that they charge. Higher interest rates will decrease consumption and investment which are components of AD. Expansionary/Reflationary/Loose monetary policy. Measuring inflation and the impact on our everyday lives, Unintended consequences of inflation targets, Resources from the Reserve Bank of Australia, How the Fed Works: After the Great Recession, How the US Federal Reserve sets interest rates, Why the Bank of England has raised interest rates, Interest Rates - play the 'Reach the Peak' Activity, The absurdity of controlling inflation by adjusting interest rates, UK interest rate rise a sign of economic healing, International Institutions (Online Lesson), Correcting Balance of Payments Imbalances (Online Lesson), Introduction to the Balance of Payments (Online Lesson), International Competitiveness (Online Lesson), AQA A-Level Economics Study Companion - Microeconomics, AQA A-Level Economics Study Companion - Macroeconomics, Advertise your teaching jobs with tutor2u, A review of the main types of macro policy and key aspects of monetary policy, Evaluating monetary policy and its effectiveness by looking at why the interest rate transmission mechanism may not work in practice, The need for alternative monetary policy approaches, around 30 minutes of guided video, spread over 5 videos, and supported by an accompanying worksheet, around 20-25 minutes of student thinking time and activity, spread throughout those 5 videos, an independent reading and ranking activity on inflation targeting, which could take students anywhere between 15 minutes and 1 hour, depending on their level of involvement, 2 interactive games testing their application and knowledge of monetary policy, a synoptic thinking activity (solutions available within the activity download), an essay-based activity, in which 2 example essays on monetary policy are provided (along with some examiner commentary) and students need to consider the strong features of these essays. The central bank sets the base/discount rate, which in turn influences the interest rate charged by financial institutions. Boston House, Strengths of the monetary policy: 1. Evaluating Monetary Policy (Online Lesson) Levels: AS, A Level, IB. Author: Mahmoud Salha 21/07/20. Monetary Policy is often employed during recessions to try and stimulate aggregate demand by reducing interest rates in the banking system. Monetary policy involves altering base interest rates, which ultimately determine all other interest rates in the economy, or altering the quantity of money in the economy. Greater efficiency. quantative easing). Interest rates can be adjusted incrementally 3. Recap the reason behind the policy implementation, the intended effect of the policy, and summarize your evaluation … importance of in-depth evaluation for your IA. A decrease in the reserve requirement allows commercial banks to lend more of the money they receive as deposits, which increases money supply and interest rates. Ruth has been an enthusiastic Head of Economics and Politics for many years, having taught in a variety of schools and at university level. his paper focuses on comparing credit easing with quantitative easing, Macroeconomic Policy Revision (Online Lesson), Introduction to Monetary Policy (Online Lesson), Fiscal and Monetary Policy - Connection Wall Activity, The Government Game - Economic Simulation Activity, Macro policies to prevent an economic depression, Benefits and Costs of High Inflation for a Government, Macro Policies to avoid an Economic Recession, Exchange Rates: Impact of QE on the value of a currency, Synoptic economics: Micro and Macro Effects of a rise in Interest Rates, Economic Effects of Higher Interest Rates (Revision Essay Plan), Advantages and Disadvantages of Quantitative Easing (QE), Advantages and Disadvantages of Higher Interest Rates, Bank of England preparing ground for negative interest rates, Bank of Jamaica Inflation-Targeting Dubplate for 2020, From our Economics Correspondent: The state of the UK economy in 2025 [Year 12 Enrichment Task]. The best way to work out how well you've understood the material in the online lessons on monetary policy is to have a go at some exam-style questions! 214 High Street, Potential for exports. The Federal Reserve or the Fed, and other central banks, trade in … You can print it off and annotate it for your own notes, or make your own notes on a separate piece of paper to add to your school/college file. Business and consumer confidence: if confidence is low even low rates of inter will not encourage them to borrow to finance investment and consumption, as they may believe that in the future they will not be able repay the loans. This video introduces you to some of these unconventional approaches to monetary policy. In this online lesson, we cover some of the key approaches for evaluating the effectiveness of monetary policy. To increase money supply and decrease the interest rate, the government will: Buy bonds from banks, giving the commercial banks more money to lend. Finally, download this tutor2u resource On Target. If you are following an alternative specification, ask your teacher which of these is the most appropriate for you. Alternative monetary policy strategies that reduce the frequency and severity of ELB recessions mitigate the adverse consequences of economic inequality, which then enhances the resilience of the economy to economic disturbances. making connections across different aspects and topics in your course. The expansionary monetary policy is successful because people and corporations try to get better … Used in attempt to close inflationary gaps. Reach the audience you really want to apply for your teaching vacancy by posting directly to our website and related social media audiences. However, this point is highly debatable! Fiscal constraints on monetary policy For much of the past three decades, fiscal policy remained a major concern for monetary policy in EMEs. Monetary policy is now regarded as one of the most important tools of economic management. Description ... Role of Monetary Policy . Greater size of the market. Ruth is passionate about boosting the quality of teaching and learning across all subjects in schools and colleges. Monetary policy: the use of interest rates and the money supply to influence the level of economic activity.. Evaluation of the monetary policy Unlike the fiscal policy, the monetary policy is actually relatively immune to political interference and so it can work solely on achieving the desired macroeconomic … 1 . Others are based on short videos, including activities for you to think about and try at home, as well as some extra worksheet-based activities. For instance, in the UK the Monetary Policy Committee meets once a month to make decisions about the interest rate, whereas, fiscal policy may not be able to be changed until the annual budget. We've put together a data response set of questions that you could tackle. Increased foreign investment. Additional teacher guidance is available at the end of this lesson. Conflicting goals: a deflationary monetary policy designed to reduce inflation can lead to slower economic growth and demand deficit unemployment. Lower interest rates will increase consumption and investment which are components of AD. For the data response activity, there is a choice between an AQA-style and an Edexcel-style data response. Could a cashless economy help central banks to use negative interest rates? Time lags: monetary policy can be implemented fairly quickly compared to fiscal policy, however, the impact on the economy can take several months to come into effect. Test yourself against the clock with these MCQs on monetary policy. an evaluation of the impact of central bank of nigeria monetary policy on the development of the nigerian economy by adam, muhammad danladi mba/admin/41920/2004-200s (g04/bamf /7007) … Abhinav. Evaluation of monetary policy • Evaluate the effectiveness of monetary policy through consideration of factors including the independence of the … Deflationary Fiscal Policy – impact on the economy of raising taxes and cutting spending. Decrease savings, as there is a lower reward, Increase consumption, as there is less incentive to save and real income increase as mortgages and loan repayments become less expensive. Independence of the central bank means politicians are unable to influence its decisions (e.g. To decrease money supply and increase the interest rate, the government will: Sell bonds to banks, so banks have less to lend, Increase savings, as there is a higher reward, Decrease consumption, as there is more incentive to save and real income decreases as mortgages and loan repayments become more expensive. Decrease investment, as borrowing to fund it is more expensive. Evaluation of Monetary Policy in reducing inflation- 4 If inflation is due to cost push factors (rising oil prices) we get higher inflation and lower output- difficult to solve both cost push inflation and lower … In this final video for this lesson, we take you through some of the wider evaluation points for monetary policy. Advantages. This column reviews empirical evidence on how monetary policy affects bank stability, focusing on unconventional monetary policy … You can find suggested answers to the AQA DR here and to the Edexcel DR here. Monetary policy: A ‘ tightening of monetary policy’ involves the central bank introducing a period of higher interest rates to reduce consumer and investment spending Higher interest rates may cause … Fiscal policy and its impact on potential output: Evaluation of fiscal policy: 2.5 Monetary policy: Interest rates: Interest rate determination and the role of a central bank: The role of monetary policy: Monetary policy and short-term demand management: Monetary policy and inflation targeting: Evaluation of monetary policy… Thank you to Peter McGinn and Jon Clark for their contributions to this lesson. Teacher. The elements of monetary relations appeared in the ancient world in the form of bills (promissory notes), but the money … The response of major central banks to the Global Crisis has rekindled the debate on the interactions between monetary policy and financial stability. The interest rate: the reward for saving and the cost of borrowing money, which is the price of money. The demand for money is due to the desire to buy goods and services and to hold it as assets. This transcript of a speech for the ECB considers why some commentators have regarded recent monetary policy as ineffective, and attempts to explain why they are wrong. From the 1990s onwards, a number of Central Banks decided to introduce inflation targets as part of their monetary policy approach. Supply Side Policy. West Yorkshire, The central bank determines the level of supply in attempt to change interest rates. Much cheaper & more effective than TES or the Guardian. Free trade among members but discriminatory policies against non-members which might not lead to global economic integration. Fiscal policy: the use of government spending and taxation to influence the level of economic activity.. Sources of government revenue: primarily from taxes … The price of bonds depends on the demand and supply on the day – they are traded on the stock exchange. RBA board meets on the 1st Tuesday of each month. This is designed to increase aggregate demand in the economy by increasing the money supply and reducing interest rates. An appropriate monetary policy by adjusting money supply to the needs of growth, directing the flow of … Monetary policy deals with the discretionary control of money supply by the monetary authorities in order to achieve the desired economic goals. No crowding out: it does not borrow large sums of money which reduces the amount of private sector borrowing and so interest rates will not increase due to this, when they are intended to fall. Your task is to i) organise the statements into advantages and disadvantages ii) rank those statements from "most convincing" to "least convincing". The interest rate transmission mechanism has broken down in parts. Small time lag (especially in countries where the use of credit cards is high. Monetary Policy; This is when the central bank* tries to control the economy by changing interest rates and the money supply *(e.g.
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