Answer to Question #205623 in Economics for Lewis Phiri

Question

Explain FOUR (4) objectives of monetary policy in Zambia.

Answer 1

Price stability is an important element of a favorable environment for people to live and do business, as it:

protects income and savings in local currency from unpredictable depreciation. This allows you to maintain a standard of living, as well as more confidently plan your daily and long-term expenses;

protects low-income citizens. Such families mainly buy inexpensive essential goods. Consistently low inflation allows maintaining the level of consumption;

contributes to an increase in the availability of debt financing for companies, as it reduces the inflation premium that banks put in interest rates;

simplifies financial and investment planning for business;

increases confidence in the national currency and creates conditions for reducing the value of assets and liabilities in the economy. This, in turn, reduces the impact of changes in external conditions on the economy.