The Buisness Cycle Of Policies Flashcards
Fiscal policy
Demand side policy
change in tax and spending
Who does fiscal policy
the state
expansionary fiscal policy
increasing speniding by the government
benefits trap
when benefits are given and taken away as soon as someone gets a job
monetary policy
changing the money supply in the economy
who does monetary policy
the Bank of England
who does the central bank lend money to
other banks mainly high street banks
high street bank
global services to fiscal needs of the population
base interest rate
or the bank rate and is the interest rate of the bank pays to high street banks
monetary policy committee
the committee in the Bank of England meets 8 times to decide if change is needed to bank rate
when does the Bank of England reduce bank rate
when inflation is below 2%, decreases bank rate, less saving, more consumption, ad, demand pull inflation
contractionary monetary policy
increasing bank rate, leads to more saving , demand falls, oppostite of demand pull inflation, inflation falls back into target
zero lower band (what is)
point where monetary policy has reduced IR to lowest and it cannot be further lowered to stimulate the economy as was reached after the financial crisis.
quantitive easing then was used.
How QE works
boe creates digital money, this is then used to buy bonds on the secondary capital market, this increases the flow of money in the economy causing inflation
