Economics
Monetary vs Fiscal Policy
Monetary policy refers to central bank activities that are directed toward influencing the quantity of money and credit in an economy. By contrast, fiscal policy refers to the government’s decisions about taxation and spending. Both monetary and fiscal policies are used to regulate economic activity over time.
The overarching goal of both monetary and fiscal policy is normally the creation of an economic environment where growth is stable and positive and inflation is stable and low.
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Economics
Classical vs Keynesian Theory
Classical Theory believes that full-employment is the employment level the economy will return to, and tends to remain at in the long run. Keynesian Theory holds that unemployment is the normal state of the economy and significant government intervention is required if employment/output targets are to be reached.
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Economics
Money Supply
The money supply measures the total amount of money in the economy at a particular time. It includes actual notes and coins and also any deposits which can be quickly converted into cash.
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Economics
Narrow Money: M0
This is the level of notes and coins in circulation + banks operational balances.
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Economics
Broad Money: M4
M4 money supply is defined as a measure of notes and coins in circulation (M0) + bank accounts. It is a broader definition than M0 money supply because it includes bank accounts and not just notes and coins in circulation.
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Economics
Milton Friedman: Monetarist Theory
Milton Friedman, an important advocate of the Monetarist Theory, pointed out that if we have a situation where the money supply rises faster than real output, it will cause inflation.
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Economics
Quantitative Easing
Quantitative easing (QE) is a monetary policy whereby a central bank purchases at scale government bonds or other financial assets in order to inject money into the economy to expand economic activity.
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Economics
Fixed-Income Security
A fixed-income security is an investment that provides a return in the form of fixed periodic interest payments and the eventual return of principal at maturity. Unlike variable-income securities, where payments change based on some underlying measure—such as short-term interest rates—the payments of a fixed-income security are known in advance.
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