Syllabus Item(s):

Webnote 253

Syllabus weight

4

Monetary Policy in Eurozone

Circular flow of income: Market economy

H F

Monetary PolicyMonetaristNeo classicalSupply side management

How to manage an economy for: stable prices, employment, growth development/

redistribution

Fiscal PolicyKeynesian demand side managment

Ing Bank

Commerzbank Sparkasse DeutscheBank

Others

Regulation: Monetary Policy Open Market Operations (OMO) Liquidity ratio Special directives (lending)

Leakages:TaxesSavingsImports

QE Or

I

ECB (regulator)

Injection (j) Spending through government lead fiscal policy

Injection (j) Spending through monetary policy (market based) approach: spending by firm =

I(nvestment))

Firms (and households) borrow money to spend on G + S. This is normal market behavior.

j

J

Injection (j) = G

Alternative Macro circular flow of income: showing importance of Monetary sector to whole economy

Syllabus weight

4Syllabus Item(s):

Webnote 253

L

1

Leakages:

S: savings

T: taxes

M: imports

Injections:

G: government

I: investment

X: exports

2