Questions and Answers
Which of the following is NOT a purpose of monetary policy?
To increase government spending
What is the main tool used in monetary policy to control the interest rate?
Decreasing the money supply
Which policy relies on taxation and government spending to manage business cycle phenomena?
Fiscal policy
What is the purpose of maintaining predictable exchange rates with other currencies?
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What is the role of monetary policy in relation to gross domestic product (GDP)?
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Study Notes
Monetary Policy
- The main purpose of monetary policy is NOT to redistribute income or wealth.
Tools of Monetary Policy
- The main tool used in monetary policy to control the interest rate is Open Market Operations (OMO).
Fiscal Policy
- Fiscal policy relies on taxation and government spending to manage business cycle phenomena.
Exchange Rates
- Maintaining predictable exchange rates with other currencies is designed to promote international trade and investment.
Monetary Policy and GDP
- The role of monetary policy in relation to gross domestic product (GDP) is to promote economic growth, stability, and low inflation.
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