1. CENTRAL BANKING

2. CENTRAL BANKS … HNB The Croatian National Bank (CNB) ECB
The European Central Bank
ECBS
The European Central Bank System
The Bank of England
The Fed
The Federal Reserve (System) …

3. Which words are defined below
Which words are defined below? open-market operations, required reserve, discount rate
The amount of funds that banks must hold in reserve against deposits made by their customers is called ….
The rate at which the central bank lends money to commercial banks is called …
The buying and selling of government securities in the market in order to increase or reduce the amount of money in the banking system is called …

4. Match the two columns: interest money required lender open-market
monetary
discount
exchange
policy
rate
operations
reserve
rates
supply
of last resort

5. Matchings: interest rates money supply required reserve
open-market operations
monetary policy
discount rate
exchange rate
lender of last resort

6. Central banks are in charge of… ensuring, holding, implementing, providing, supervising, acting
…monetary policy
…price stability
…the exchange rate (forex operations, FX)
…commercial banks
…as lender of last resort
…bank reserves (required reserve)
…currency (cash) to banks
…loans to banks – discounting
…as the government’s bank
…as the bankers’ bank

7. Central banks are in charge of…
implementing monetary policy
ensuring price stability
supervising the exchange rate (forex, FX operations)
supervising commercial banks
acting as lender of last resort
holding bank reserves (required reserve)
providing currency (cash) to banks
providing loans to banks - discounting
acting as the government’s bank
acting as the bankers’ bank

8. Assignment: Read the extracts from Schiller’s Essentials of Economics (1996) and fill in the table:
MONETARY POLICY
PROBLEMS
What has gone wrong?
GOALS
What should be done?
MEASURES
How should it be done?
Expansionary
(Loose)
Restrictive
(Tight)

9. Read the extracts from Schiller’s Essentials of Economics (RB: p
Read the extracts from Schiller’s Essentials of Economics (RB: p.63) and fill in the table:
MONET. POLICY
PROBLEMS
OBJECTIVES
MEASURES
Expans.
Economy in recession
(below its full-employment potential)
To stimulate the economy:
to increase
borrowing & spending ↓
to encourage output
Increasing the money supply:
lowering the reserve requir.
dropping the discount rate
buying more bonds
lowering interest rates
easier approvals of loans
Restr.
Overheating economy
(too much pressure on production capacity, rising prices)
To cool the economy:
to lessen loan availability →lower investments
to reduce aggr. demand
Reducing the money supply:
-raising the reserve requir.
- increase the discount rate
- selling bonds
- higher interest rates
- less available loans

10. Loose or tight? Quantitative Easing‘ (QE)
QE is an unconventional monetary policy in which a central bank purchases government securities or other securities from the market in order to lower interest rates and increase the money supply. Quantitative easing increases the money supply by flooding financial institutions with capital in an effort to promote increased lending and liquidity. QE targets commercial bank and private sector assets and attempts to spur economic growth by encouraging banks to lend money. Quantitative easing is considered when short-term interest rates are at or approaching zero, and does not involve the printing of new banknotes.
Read more about QE: