Goals of Monetary Policy
Demand Management (Monetary Policy)
AO2
Syllabus requirement
Includes inflation targeting, low unemployment, reducing business cycle fluctuations, supporting long-term growth, and maintaining external balance.
Assessment objectives
AO2 Application and Analysis
Summary
This topic explains the main goals of monetary policy: keeping inflation low and stable, supporting low unemployment, smoothing business cycle fluctuations, creating a stable environment for long-term growth, and maintaining an external balance. It also describes how central banks and commercial banks use tools such as interest rates, reserve requirements and credit creation to influence aggregate demand, exchange rates and the money supply.
