Page 69 - FINAL CFA I SLIDES JUNE 2019 DAY 5
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Session Unit 5:
18. Monetary and Fiscal Policy
LOS 18.h: Describe tools used to implement monetary policy, p.113
• Policy rate (Repo/repurchase)
• Reserve requirements
• Open market operations
LOS 18.i: Describe the monetary transmission mechanism., p.113
Transmitted to price and inflation level - e.g. a contractionary/policy rate increase leads to:
• Short-term lending rates increase, decreasing AD/C as businesses cut back in Inv.;
• Asset prices (bonds, equities) decrease due to increased discount rates applied to future
cash flows. Could have a wealth effect: increase savings rate and decrease consumption.
• Both consumers and businesses may decrease their expenditures because their
expectations for future economic growth decrease.
• Attract foreign investment in debt securities, leading to currency appreciation, hence reduce
demand for the country’s Xs.
