Monetary policy is the branch of financial policy that is concerned ... controlling the supply of money and credit. Monetary policy is important because of its impact... inflation and on interest rates.
If a government pursues an "easy" monetary policy it means that it allows the amount of money ... circulation to rise and it lets banks increase the volume of loans.
If government pursues a "tight" monetary policy, it restricts the amount ... money in circulation and reduces the funds available ... banks... making loans.
When money is tight:
1. Interest rates rise, because commercial banks have to borrow ... a higher rate ... the interbank market.
2. Credit falls, because people and businesses borrow less ... higher rates.
3. Aggregate demand falls, because people and businesses buy less, as they have less money.
4. Output falls, too, because ... less consumption, firms produce less.
5. Unemployment rises, because companies are producing and selling less, and so need ... less labour.
6. Inflation falls, because there is less money in circulation.
7. The exchange rate will probably rise, if there is the same demand but less money, or if there is higher demand, as foreigners take advantage of the higher interest rates to invest ... the currency. Increasing the money supply, ... making more reserves available, has the opposite effects.
The amount of money ... circulation and its velocity of circulation determine the average level of prices and wages. Many central banks now set money supply targets. ... increasing or decreasing the money supply, the central bank indirectly influences ... interest rates, demand, output, growth, unemployment and prices. The central bank can reduce the reserves available ... commercial banks by changing the reserve requirements. This reduces the amount ... money that banks can create and makes the money tight or scarce.
Alternatively, the central bank can engage ... what are called open-market operations, which involve selling short-term government bonds (such as three-month Treasury bills) ... the commercial banks, or buying them back.
Words you may need:
money is tightденег недостаточно
interbank marketмежбанковский рынок
velocity of circulationскорость обращения
to set targetsустанавливать ориентиры, показатели
alternativelyadv (зд.) и наоборот
engagev заниматься (чём-л.)
short-term government bondsгосударственные краткосрочные облигации
Treasury billказначейский вексель