1. PART TWO: BANKING, FINANCE AND INVESTMENTS UAE Monetary Policies and the Role of the Central Bank CH 5

2. Monetary & Fiscal Policy Monetary policy is the process by which the monetary authority ( Central Bank)of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability fiscal policy is the use of government revenue collection (taxation) and expenditure (spending) to influence the economy

3. Monetary & Fiscal Policy Interest Rate & Inflation; Interest rates directly affect the credit market (loans) because higher interest rates make borrowing more costly. By changing interest rates, the Central Bank tries to achieve maximum employment, stable prices and a good level growth. As interest rates drop, consumer spending increases, and this in turn stimulates economic growth.

4. Monetary & Fiscal Policy An economy that is growing too fast can experience hyperinflation. Also, in a healthy economy, wages rise at the same rate as prices. An economy with no inflation has essentially stagnated. The right level of economic growth, and thus inflation, is somewhere in the middle. It's the central bank's job to maintain that delicate balance

5. Monetary & Fiscal Policy How do interest rates affect the rise and fall of inflation? lower interest rates put more borrowing power in the hands of consumers. And when consumers spend more, the economy grows, naturally creating inflation. If the central bank decides that the economy is growing too fast-that demand will greatly outpace supply-then it can raise interest rates, slowing the amount of cash entering the economy ( lowering the liquidity).

6. UAE Monetary Policies and the Role of the Central Bank The main responsibility of the Central Bank is formulation and implementation of banking, credit and monetary policies, to ensure the growth of the national economy of the UAE in a balanced manner. The Central Bank is also working to maintain a fixed exchange rate of the dirham against the U.S. dollar and to ensure the free convertibility of the national currency into foreign currencies, in addition to its role as "Bank of Banks" and the Government's bank and its financial adviser. Source: UAE Central Bank 2013

7. UAE Monetary Policies and the Role of the Central Bank Source: UAE Central Bank 2013

8. UAE Monetary Policies and the Role of the Central Bank Source: UAE Central Bank 2013

9. UAE Monetary Policies and the Role of the Central Bank Source: UAE Central Bank 2013

10. UAE Monetary Policies and the Role of the Central Bank Source: UAE Central Bank 2013

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