Overnight target rates and inflation, Macroeconomics

Assignment Help:

Overnight target rates and inflation

One of the major targets of every central bank is a low and stable inflation. Its main control variable is the overnight interest rate target and mechanism which allows the target to affect inflation is known as transmission mechanism. A brief account of the transmission mechanism looks like this: 

1. When central bank target rate increases, other interest rates in economy will increase (and money supply will decrease, however that isn't important here). 

2. With higher interest rates, it's more expensive to borrow and more advantageous to save. Hence, investment and consumption will decrease (we say that central bank 'cools off' the economy). 

3. As consumption and investment fall, GDP is reduced and unemployment will rise. This will cause inflation and growth rate in wages to fall.


Related Discussions:- Overnight target rates and inflation

Help .., I need help with Creating a table showing the CAGR of GDP by decad...

I need help with Creating a table showing the CAGR of GDP by decade and over the entire period of time

Explain money market with inflation, Q. Explain money market with inflation...

Q. Explain money market with inflation? The money market with inflation  Let's begin with the money market diagram and introduce inflation. As M D relies positively on P

Credit multiplier, compute: credit multiplier, maximum change in the money ...

compute: credit multiplier, maximum change in the money supply

Important for policymakers, Why is it important for policymakers to conside...

Why is it important for policymakers to consider both the direct and indirect effects of public policies?

Financial payments flow between firms and government, Explain whether, the...

Explain whether, the following statements are TRUE, FALSE or UNCERTAIN. Briefly justify your answer. (i) The circular flow shows how real resources and financial payments flow

International trade and Economic growth, If real GDP was $13.1 trillion in ...

If real GDP was $13.1 trillion in 2013 and $13.3 in 2014, what is the growth rate? (b) How many years would it take for GDP (gross domestic product) to double (using your answer fr

Permanet inocme, if your earning records over year has been:Yt=$40000 Yt-1=...

if your earning records over year has been:Yt=$40000 Yt-1=$38000 Yt-2=34000 Yt-3=$32000 YT-4=31000,What is the your permanet income?

Checkijaskfd, kajfasklfasklfj laksflaskfads

kajfasklfasklfj laksflaskfads

Survivor Island, the central economic problem facing the group of survivors...

the central economic problem facing the group of survivors

Why does an indifference curve never meet, No indifference curve can inters...

No indifference curve can intersect due to all points on indifference curve are ranked equally preferred and ranked or less more preferred than each other point on the curve.

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd