Monetary Policy Flashcards
What is monetary policy?
The manipulation of interest rates, the money supply and exchange rates to influence economic activity.
What does the monetary policy committee (MPC) do?
Decide the monthly interest rates
What is the main target of monetary policy?
Keep the inflation rate at the target of 2%
What are bonds?
Loans that can be bought by the government who will pay them back with interest (a type of investment).
How can the money supply be manipulated?
If the BOE expands the supply of money in the economy then it should encourage spending but could also cause inflationary pressures.
Explain quantitative easing
If the BOE buys lots of bonds then it will increase demand which will increase the price. This will also lead to a fall in interest rates. This makes it easier for consumers to borrow and spend.
