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Monetary Policy
Nominal Interest Rate (i)
Policy Interest Rate and its Influence on Short-Term Rates
The policy interest rate is the primary monetary policy tool controlled by a central bank. It is the nominal rate for commercial banks borrowing base money from each other or the central bank. By setting this rate, the central bank effectively controls the interest rates on all other short-term, risk-free borrowing, typically for periods up to about three months. This control over short-term market rates is the initial step in the monetary policy transmission mechanism.
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Economics
Economy
Introduction to Macroeconomics Course
Ch.5 Macroeconomic policy: Inflation and unemployment - The Economy 2.0 Macroeconomics @ CORE Econ
The Economy 2.0 Macroeconomics @ CORE Econ
CORE Econ
Social Science
Empirical Science
Science
Ch.7 Macroeconomic policy in the global economy - The Economy 2.0 Macroeconomics @ CORE Econ
Introduction to Microeconomics Course
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Inflation Targeting
Historical Government Control over Monetary Policy
Central Bank Independence and Delegation of Monetary Policy
Influence of 1970s High Inflation on Macroeconomic Policy Rethinking
Policy Interest Rate and its Influence on Short-Term Rates
Figure E6.1a: Determining the Policy Rate in a Scarce Reserves System
Assumption of No Inflation in the Intertemporal Choice Model
An individual takes out a one-year loan for $1,000 from a bank that advertises a 7% annual interest rate. At the end of the year, the individual repays the bank $1,070. During that same year, the average price level of goods and services in the economy increased by 3%. Which statement best dissects the components of this financial arrangement?
Identifying the Nominal Interest Rate in a Loan Agreement
Calculating Purchasing Power Change
If you deposit money into a savings account that pays a 2% annual interest rate, and the economy experiences a 3% inflation rate over the same year, your purchasing power will have increased at the end of the year.
When a bank advertises a specific interest rate for a savings account, this publicly stated rate, which does not account for the potential erosion of purchasing power due to a general rise in prices, is referred to as the ______ interest rate.
Match each term to the description that best defines its economic meaning.
Evaluating the Usefulness of the Nominal Interest Rate
A saver is considering depositing $100 into a new savings account. Arrange the following steps in the logical order they would follow to determine the change in their actual purchasing power after one year.
A commercial bank advertises a savings account with a '5% Annual Percentage Rate (APR)'. If a customer deposits $1,000 into this account and there are no other fees or transactions, what does this 5% rate directly determine?
Calculating Loan Repayment Amount
Real Interest Rate (r)
Policy Interest Rate and its Influence on Short-Term Rates
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Monetary Policy Transmission Mechanism
Indirect and Limited Influence of Policy Rate on Wider Market Rates
A nation's central bank announces a 0.25% reduction in its primary policy interest rate. Based on the principles of how this tool functions, which of the following outcomes is the most direct and immediate consequence of this action?
Evaluating the Scope of Central Bank Influence
A central bank's decision to raise its policy interest rate will cause an immediate and equivalent increase in the interest rates for 30-year corporate bonds.
A country's central bank has just announced an increase in its primary policy interest rate, which serves as the benchmark for overnight lending between commercial banks. An analyst is observing the immediate effects on various financial markets. Which of the following interest rates should the analyst expect to see the most direct and significant corresponding increase?
Analyzing Market Rate Responses
Explaining the Central Bank's Influence
A central bank has just announced a change to its primary policy interest rate. Arrange the following events in the most likely chronological sequence, starting with the initial action.
A central bank has just lowered its main policy interest rate. Match each type of market interest rate below with the most likely immediate effect it will experience as a result of this policy change.
When a central bank adjusts its main policy rate, it is primarily aiming to exert direct control over other ______ interest rates in the financial system.
Central Bank Policy Recommendation