Th2.6: Monetary Policy - Interest Rates

Question 1

What is used to change the official base rate in order to tackle inflation?

Answer 1

interest rate (price of money) and MPC

Question 2

What is the repo rate?

Answer 2

the rate the Bank of England will charge for short-term loans to other banks or financial institutions

Question 3

What does a change in the repo rate do?

Answer 3

affects market rates offered by banks to consumers and businesses as the Bank of England is the lender of last resort

Question 4

If they are short of money, what will banks have to do?

Answer 4

borrow from the Bank of England at the repo rate and therefore need to make sure their interest rates are based on this rate so they can make a reasonable return