Page 9 - FINAL CFA SLIDES DECEMBER 2018 DAY 6

Session Unit 5:
18. Monetary and Fiscal Policy

LOS 18.j: Describe qualities of effective central banks, p.114

• Independence -operational vs target independence;

• Credibility –Selecting the right targets and delivering on these!

• Transparency - openly disclose the state of the economic environment/MPC update.

LOS 18.k: Explain the relationships between monetary policy and economic growth, inflation,
interest, and exchange rates, p.115

Expansionary Monetary Policy = Amy Or All of:

• Increase bank reserves by buying securities;

• Decrease interbank lending rates;

• Other short-term (or long-term) rates decrease –business increase I, Consumer increase C
(durables);

All increase AD, inflation, employment and real GDP

Reverse is true!