It can affect the level of activity in the economy in the short-term, the cost of living for individuals and their expectations about wage and price outcomes, asset valuations, the cost of borrowing and the returns to savers and investors, and the incentives for risk taking. But several factors constrain the influence of central banks, particularly in small open economies.
At the same time, market expansion and the associated increase in purchasing power induce new entry into the market, which leads to more intensified competition and higher efficiency. This mechanism applies equally to economic globalization. The division of labor through international trade and the efficient use of managerial resources through direct investment are indispensable for economic development. II.