Monetary Policy Overview

Front

What is discretionary monetary policy?

Back

Discretionary monetary policy is the action by Bank Negara Malaysia (BNM) to change money supply using monetary policy tools.

Front

What are the main tools of discretionary monetary policy?

Back

The main tools are open-market operations, reserve ratio, interest rate, and discount rate.

Front

What is the purpose of expansionary monetary policy?

Back

Expansionary monetary policy is designed to combat a recession by increasing money supply to stimulate the economy.

Front

What actions are taken in expansionary monetary policy?

Back

Actions include decreasing interest rates, buying government bonds, decreasing the reserve ratio, and decreasing the discount rate.

Front

How does decreasing the interest rate affect the economy?

Back

Decreasing the interest rate encourages borrowing and spending, increasing purchasing power and economic growth.

Front

What is the effect of buying government bonds during a recession?

Back

Buying government bonds increases money in circulation, enabling the public to increase consumption expenditure.

Front

What happens when the reserve ratio is decreased?

Back

Decreasing the reserve ratio allows banks to have more excess reserves, increasing their ability to create loans.

Front

What is contractionary monetary policy?

Back

Contractionary monetary policy is designed to combat inflation by decreasing money supply and slowing down economic growth.

Front

What actions are taken in contractionary monetary policy?

Back

Actions include increasing interest rates, selling government bonds, increasing the reserve ratio, and increasing the discount rate.

Front

How does increasing the interest rate affect consumer spending?

Back

Increasing the interest rate makes borrowing more expensive, reducing consumer and business spending.