Bank of England Flashcards
Bank charter act (1921)
A total restriction on banks other than the bank of England to issue notes
Independent central bank in the US
The federal reserve
Independent central bank in Germany
The Bundesbank
Role of the bank of england
- Deciding interest rates (base rate - aimed to try and keep inflation at a rate of 2%)
- Managing foreign reserves (settling international debts)
- Lender of last resort
- Issuing notes and coins
- Regulating the UK banking system
- Providing banking facilities to high street banks
Base rate
The rate at which commercial banks have to borrow from the Bank of England. Currently at a historic low of 0.25%. Influential in determining interest rates throughout the economy
Quantitative easing
Used by the Bank of England to inject money into the economy. Using digital money created to buy government bonds from financial institutions which increases the money available to be lent to businesses and individuals. Following QE announced in August 16,, purchases of government bonds will total £435bn.
Monetary policy committee
Sets the bank’s interest rate at a level it thinks will maintain inflation at 2%. made up of nine members – the Governor, the three Deputy Governors for Monetary Policy, Financial Stability and Markets & Banking, the Bank’s Chief Economist and four external members appointed directly by the Chancellor
Consumer Price Index
a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them. Changes in the CPI are used to assess price changes associated with the cost of living; the CPI is one of the most frequently used statistics for identifying periods of inflation or deflation.
Gross Domestic Product
GDP is a measure of the size and health of a country’s economy over a period of time (usually one quarter or one year). It can be used to compare the size of different economies at a time
How is GDP calculated?
To measure GDP, the Office for National Statistics (ONS) collects data from thousands of UK companies. Can be calculated by three different totals:
- Total value of goods and services (output) produced
- Total of everyone’s income
- Most commonly: total of what everyone has spent (government spending, household spending (about 2/3), investment, net exports)
How is GDP calculated?
To measure GDP, the Office for National Statistics (ONS) collects data from thousands of UK companies. Can be calculated by three different totals:
- Total value of goods and services (output) produced
- Total of everyone’s income
- Most commonly: total of what everyone has spent (government spending, household spending (about 2/3), investment, net exports)
What are some limitations of GDP?
- Doesn’t say anything about distribution (ie rich getting richer)
- If populations increase then individuals could actually be worse off on average
- Some things have a lot of value but are not included as no money changes hands
- Somethings might raise GDP without making country better off - e.g. war
Legal tender
It means that if you are in debt to someone then you can’t be sued for non-payment if you offer full payment of your debts in legal tender
Nickname for the bank of England
Old lady of threadneedle street
How much gold is kept in the bank of England?
The gold vaults hold around 400,000 bars of gold worth roughly £100bn. Second largest in the world behind the federal reserve. Gold not owned by bank, is the country’s reserves and overseas central banks. No longer able to transfer money for gold (as you could before the 1930s).
