6
Concepts
3
Formulas
1
Decisions
4
Quiz Questions
6 concepts covered in this module.
Lender of last resort, banker to government, monetary policy implementation, financial system regulation, payments system oversight.
The short-term interest rate set by the central bank (e.g., Fed Funds rate). Primary tool of conventional monetary policy.
Policy rate → market rates → asset prices → exchange rates → expectations → aggregate demand → inflation/output.
Most central banks target 2% inflation. Provides anchor for expectations. Transparency and credibility are key.
Unconventional policy: central bank buys long-term assets to lower long-term rates when short-term rates are at zero (zero lower bound).
Operational independence reduces political pressure and inflation bias. Goal independence varies by country.
3 essential formulas for this module.
Where: Approximate relationship
Where: M = money supply, V = velocity, P = price level, Y = real output
Where: In long run, money supply changes only affect prices, not real output
1 decision frameworks to guide your analysis.
Visual overview of how concepts connect in this module.
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Central Bank Roles
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