Open-market operations
The central bank buys and sells bonds. To cool the economy (decrease the money supply) they sell bonds to the public. The money received in payment is no longer in circulation for the purchase of goods and services. To stimulate the economy (increase the money supply) they buy back bonds from the public, and the money they pay enters circulation.
With these three tools central banks can operate either an ‘expansionary’ or a ‘restrictive’ monetary policy.
TASK 15.2 Vocabulary
According to the texts, are these statements true (T) or false (F).
Fiscal policy consists of taxation and spending decisions, and is under the control of governments. Monetary policy consists of interest rate and other money supply decisions, and is under the control of central banks. T / F
Government spending resulting from high taxes gives a stimulus to small businesses. T / F
High taxes can give new opportunities for certain businesses (eg. in the defense or medical supplies sectors). T / F
Raising interest rates is a way of stimulating the economy. T/F
Underline the correct words.
Having an 'expansionary monetary policy' is the same thing as increasing / decreasing the amount of money in circulation, which will provide a stimulus to / cool the economy, which over the long term runs the risk of creating inflation / deflation.
Now underline all the measures that can be taken - according to the text - if fighting inflation (ie slowing the economy) is the only consideration of policy. Give the translation of ready measures and make your own sentences.
increasing I decreasing taxation
increasing I decreasing interest rates
increasing I decreasing the reserve requirements of banks
increasing / decreasing the sale of bonds by the central
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