Explain two ways in which central banks use monetary policy to influence the economy.

Monetary policy, the instruments by which central banks and adjust the value and supply of a currency, most notably take the forms of interest rate changes and credit expansions. Firstly, the lowering of interest rates by central banks increases the demand for loans which in turn can increase investment and consumption, raising GDP. Secondly, the expansion of the money supply via tools including quantitative easing provides commercial banks with adequate liquidity during crises in an effort to prevent insolvencies and the resulting loss of deposits.

Answered by Economics tutor

1818 Views

See similar Economics A Level tutors

Related Economics A Level answers

All answers ▸

What is the basic Economic problem, and how does Economics as a discipline approach this?


Explain the term 'recession' and analyse two possible causes of a recession.


Examine the desirability of a fixed exchange rate regime amongst the world's major economies.


Explain why an increase in labour productivity is likely to reduce the deficit on the current account of the balance of payments.


We're here to help

contact us iconContact ustelephone icon+44 (0) 203 773 6020
Facebook logoInstagram logoLinkedIn logo

MyTutor is part of the IXL family of brands:

© 2025 by IXL Learning