Economics Department

Monetary Policy Week 1 Worksheet: Theory and Institutions.

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1) Define:         Money Supply

                        Money Demand

                        Interest rates

                        Monetary Policy                                                                       (8 marks)

2) Explain the basic role of the Central Bank.                                                    (3 marks)

3) Explain how high street banks can 'create credit'                                            (4 marks)

4) Explain the difference between ‘narrow’ and ‘broad’ money.                         (3 marks)

5) Explain the impact on the money supply of the credit creation process.           (3 marks)

6) Why has the Bank of England operated through interest rates rather than direct control of the Money Supply                                                                                                              (5 marks)

7) To what extent do the charts above suggest a link between M0 and M4        (5 marks)

8) Is this what you would expect?                                                                     (4 marks)

Total 35 marks

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