Economics and Finance Notes For CSS and PMS.

Quantity supplied of a good rises when the price of good rises ,(Positive relationship).
Thus, the supply of a good is negatively related to the price of the..............?

Monetary policy:

Monetary Policy
Monetary policy refers to the actions taken by a central bank to control the money supply and interest rates in an economy to achieve macroeconomic objectives like price stability, full employment, and sustainable economic growth.
Who Controls It?

Central banks are responsible for monetary policy — the Federal Reserve (USA), European Central Bank (EU), Bank of England (UK), and Reserve Bank of India (RBI) are key examples. They operate independently from governments to avoid political interference.

Core Objectives
The primary goals are controlling inflation, maintaining employment, ensuring economic growth, and in some countries, managing exchange rate stability. Most central banks target an inflation rate of around 2% as a healthy benchmark.

Key Tools
Interest Rates are the most important tool. By raising or lowering the benchmark policy rate, central banks influence borrowing costs across the entire economy. Lower rates encourage spending and investment; higher rates cool down an overheating economy.

Open Market Operations (OMO) involve buying or selling government securities. Buying bonds injects money into the banking system; selling them withdraws money, tightening liquidity.

Reserve Requirements dictate how much money banks must keep in reserve. Lowering this frees banks to lend more; raising it restricts credit flow.
Quantitative Easing (QE) is an unconventional tool used when interest rates hit near zero. The central bank purchases large-scale assets like government bonds to directly inject liquidity into the financial system — widely used after the 2008 financial crisis and during COVID-19.

Two Types of Monetary Policy

Expansionary policy is used during recessions. Central banks lower interest rates and increase money supply to stimulate borrowing, spending, and investment — boosting economic activity and employment.

Contractionary policy is used when inflation is too high. Rates are raised, credit becomes expensive, spending slows, and price pressures ease — though it risks slowing growth if overdone.

How It Works in Practice
When a central bank cuts rates, commercial banks lower their lending rates. Consumers take out more loans, businesses invest more, hiring increases, and GDP grows. Conversely, rate hikes make mortgages, car loans, and business credit more expensive, reducing demand and pulling inflation down. This transmission process typically takes 12 to 18 months to fully impact the economy.

Limitations
Monetary policy is powerful but not perfect. It suffers from time lags, making it hard to fine-tune. In a liquidity trap (rates near zero), further cuts lose effectiveness. It also cannot directly target specific sectors — it affects the entire economy broadly. Global interconnectedness means US rate decisions can trigger capital flight from emerging markets.

Recent Example
Between 2022 and 2024, the US Federal Reserve raised rates from near 0% to above 5% to combat post-pandemic inflation that had surged to nearly 9% — the most aggressive tightening in four decades — successfully bringing inflation back toward the 2% target.
Monetary policy is essentially the economy's thermostat, constantly adjusted to maintain balance between growth and stability.

BY: Hamza Khan.-om6bj # eco #.

𝐖𝐢𝐥𝐥 𝐬𝐞𝐧𝐝 𝐲𝐨𝐮 $10:𝟎𝟎 𝐅𝐫𝐞𝐞𝐩𝐥𝐚𝐲
𝐑𝐞𝐝𝐞𝐞𝐦𝐚𝐛𝐥𝐞 𝐟𝐨𝐫 𝐨𝐥𝐝 & 𝐧𝐞𝐰 𝐚𝐜𝐜𝐨𝐮𝐧𝐭
𝟏. 𝐋𝐢𝐊𝐄 𝐓𝐡𝐢𝐬 𝐏𝐨𝐬𝐭
2. 𝐂𝐨𝐦𝐦è𝐧𝐭 𝐟𝐫𝐞𝐞 𝐏𝐥𝐚𝐲
3.𝐒𝐞𝐧𝐝 𝐮𝐬 𝐚 𝐦𝐞𝐬𝐬𝐚𝐠𝐞 𝐭𝐨 𝐜𝐥𝐚𝐢𝐦
https://www.facebook.com/61573573512166/posts/122185476356785783/?mibextid=rS40aB7S9Ucbxw6v

𝐖𝐢𝐥𝐥 𝐬𝐞𝐧𝐝 𝐲𝐨𝐮 $10:𝟎𝟎 𝐅𝐫𝐞𝐞𝐩𝐥𝐚𝐲
𝐑𝐞𝐝𝐞𝐞𝐦𝐚𝐛𝐥𝐞 𝐟𝐨𝐫 𝐨𝐥𝐝 & 𝐧𝐞𝐰 𝐚𝐜𝐜𝐨𝐮𝐧𝐭
𝟏. 𝐋𝐢𝐊𝐄 𝐓𝐡𝐢𝐬 𝐏𝐨𝐬𝐭
2. 𝐂𝐨𝐦𝐦è𝐧𝐭 𝐟𝐫𝐞𝐞 𝐏𝐥𝐚𝐲
3.𝐒𝐞𝐧𝐝 𝐮𝐬 𝐚 𝐦𝐞𝐬𝐬𝐚𝐠𝐞 𝐭𝐨 𝐜𝐥𝐚𝐢𝐦

OPEC?

Economics and History.

BY: Hamza Khan.

Seven (7) Important terms.