ECONOMICS
FISCAL POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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To change the interest rates depending on the circumstances in the economy
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To make people pay more money on their home loans
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To reduce the amount of debt the government has
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To increase or lower the taxes on imported goods
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Detailed explanation-1: -What is monetary policy and why is it important? Central banks use monetary policy to manage economic fluctuations and achieve price stability, which means that inflation is low and stable. Central banks in many advanced economies set explicit inflation targets.
Detailed explanation-2: -Changes to monetary policy affect interest rates in the economy. Changes to interest rates affect economic activity and inflation.
Detailed explanation-3: -Monetary policy influences interest rates in the economy – like interest rates for housing loans, business loans and interest rates on savings accounts. Changes in interest rates influence people’s decisions to invest or consume, which ultimately affects economic growth, employment and inflation.
Detailed explanation-4: -In general, the effects of monetary policy on economic activity, through a decline or a rise in (real) interest rates, are as follows. When interest rates decline, financial institutions can procure funds at low interest rates. This enables them to reduce their lending rates on loans to firms and households.