Monetary Policy Archives

Monetary Policy

Discount Rate Definition

Discount Rate Definition

The discount rate is the interest rate by which the central bank charges commercial banks to borrow money or cover short-term liabilities. In other words, the central bank lends money to the likes of Goldman Sachs, and in turn, they pay interest of that loan. The interest paid is known as the discount rate.

How Does Quantitative Easing Work

How Does Quantitative Easing Work

Quantitative Easing works in 5 sequential steps: Central Bank Creates Money, Central Bank Purchases Debt, Interest Rates Decline, Businesses/Consumers Borrow More, and Businesses/Consumers Spend More.

Tools pf Monetary Policy

3 Tools of Monetary Policy

There are three main tools of monetary policy – open market operations, reserve requirements, and the discount rate. These are decided by central banks such as the Federal Reserve.

Exchange Rate Definition

Exchange Rate Definition

An exchange rate is the value by which two currencies are swapped with each other. In other words, it is the rate or value at which one currency can purchase another currency.

Central Bank Definition

Central Bank Definition

A central bank controls the supply of money as well as how it reaches the consumer. It can not only print and inject money into the economy, but also regulate commercial banks distribution of it.