Monetary policy

Short questions

1. Why is the UK's inflation target not zero?

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

3. For the UK economy, what is the approximate 'neutral zone' for interest rates?

4. What is the estimated time lag between change of interest rates and a change in the price level?

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

6. Explain the problem of the 'dual economy' and how it affects interest rate decisions.

7. What is the 'liquidity trap'?

8. What is Goodhart's Law?

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