Module 3

Question 1

Fixed Interest Securities

Answer 1

When economy is booming, this will push the price up generating inflation and higher interest rates.

When interest rates and inflation is low and falling, the income from the fixed interest securities becomes more attractive

Question 2

Fiscal Policy

Answer 2

Use of government spending and taxation

Question 3

Monetary Policy

Answer 3

Control interest rates and the supply of money

Question 4

Money Supply M0 and M4

Answer 4

M0 = Narrow money, includes notes and cops in circulation plus banks deposits.

• Indication of consumer spending and retail sales
• Growth in M0 means that consumers spending is buoyant and contraction indicates consumers are acting more cautiously

M4 = Broad Money, same as above plus bank accounts of banks and building societies .
Acts as an indicator of the economy:
- Increased demand for loans if reflected in a faster growth of M4

Bank of England can influence the volume of money in circukatuin by selling and purchasing treasury bills and government stock