Page 69 - FINAL CFA I SLIDES JUNE 2019 DAY 5
P. 69

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.
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