Monetary policy

Short questions

  1. Why are official inflation targets not set at zero?

  2. Explain how changes in interest rates affect aggregate demand.

  3. What is the likely time lag between a change in interest rates and a change in the price level?

  4. Why is it generally considered beneficial for interest rates to be changed by a small amount at a time?

  5. What is the liquidity trap?

  6. What is Goodhart’s Law?

  7. Do changes in interest rates primarily affect the supply of money or the demand for money? Explain your answer.