Nine expert economists who spend almost their entire time watching the data before they reach a joint conclusion at their meeting each month
1 of 14
When was the Bank of England made independent from the government?
1997
2 of 14
Why is transparency of the MPC guaranteed?
The minutes of MPC meetings are always made public two weeks later
3 of 14
What is the point of the MPC?
To maintain the 2% target of inflation to maintain stability and sustainable economic growth rates
4 of 14
How can the MPC reduce inflation?
By increasing interest rates as people will have less disposable income and it will cost more for banks to repay finance so businesses will experience lower demand, and AD will fall
5 of 14
How long does time lags take to reduce inflation?
Two years
6 of 14
Why have banks always been regulated?
Because bank failure has very detrimental effects on the economy
7 of 14
Why do banks fail?
The basic problem is loss of confidence. If the bank's accounts show that a number of borrowers have been unable to repay their loans, then it will be obvious that the bank is making losses. Depositors will start to withdraw their savings and trigger
8 of 14
Why is bank failure very detrimental for the economy?
Some depositors will not get their money back so they will not be able to repay debts and AD will fall dramatically and can result in widespread recessions
9 of 14
How does regulation work?
Banks must be compelled to hold larger reserves of cash so that they can withstand defaults by their borrowers, the IMF and Bank for International Settlements help government decide on these resevres
10 of 14
What is the aim of the FPC?
Identifying, monitoring and taking action to remove or reduce systemic risks with a view to protecting and enhancing the resilience of the UK financial system
11 of 14
What are the FPC's objective?
Financial stability and resilience, preventing bank failures and supporting government policy
12 of 14
How does the central bank act as a lender of last resort?
Providing short-term loans to even out daily fluctuations in flows of money between banks and lending to banks that are unable to meet customer demands to withdraw their money
13 of 14
What does the lender of last resort function help create?
Confidence in the banking system as it makes it unlikely depositors will lose their money
14 of 14
Other cards in this set
Card 2
Front
When was the Bank of England made independent from the government?
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