This is a must-read for all H2 Economics students out there. As you read this article, here are some questions for you to think about and perhaps practice. I will be posting the answers to some of them later this week.
- Explain the difference between the determination of short term interest rates and long term interest rates with the aid of a diagram.
Optional: “Moreover, according to a variety of measures, the public’s expectations of inflation over the long run remain quite stable within the range that they have been for many years.”
Is this necessarily a good thing? What are some of the negative effects of price stability?
- “Unlike fiscal policy, monetary policy does not involve any taxation, transfer payments, or purchases of goods and services.”
Discuss the costs and downsides of an expansionary monetary policy, like the one conducted by the Federal Reserve, to the economy.
Read the article here.