Monetary Economics Flashcards, test questions and answers

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What is Monetary Economics?

Monetary economics is a branch of economics that deals with the study of how money, banking and financial markets work. It studies the creation, distribution and use of money, as well as its effects on economic output, prices, employment and growth. It is closely related to macroeconomics because it studies the relationship between money supply and demand for goods and services, interest rates and other factors that contribute to economic stability.At its simplest level, monetary economics looks at how people use money in their everyday liveshow they spend it on goods or services or save it for future purchasesand how these decisions impact overall economic performance. It also studies how governments influence the supply of money through their control of the central bank. In addition to exploring consumer-level decisions about spending and saving, monetary economists examine larger institutional trends in banking systems such as credit creation processes, investment patterns among banks or changes in regulations affecting banking operations.The field also considers broader topics such as international capital flows across borders; macroeconomic policies like inflation targeting; changes in asset classes like stocks and commodities; currency exchange rates; global capital markets; risk management measures employed by banks; government interventions into financial systems during times of crisis; capital adequacy requirements imposed upon banks by regulators; public debt management strategies used by governments to finance budget deficits; regulations governing securities trading activities in stock exchanges around the world.Monetary economists often draw on numerous theories from fields like game theory (to analyze strategic interactions between firms), contract theory (to examine relationships among different stakeholders within a firm), public choice theory (to assess incentives faced by policymakers) or behavioral finance (to consider investor psychology). They often use models based upon mathematical equations to predict potential outcomes from certain policies or scenarios. The discipline’s scope ranges from short-term forecasting exercises related to specific events to long-term projections about possible macroeconomic trends over many years or even decades.