Studied by 3 peopleMonetary Policy
A policy that aims to control the total supply of money in the economy to try to achieve the government’s economic objectives, particularly price stability.
Inflation target
2% + - 1% CPI
Aggregate demand formula
C + I + G + (X - M)
Bank/Base interest rate
The base rate of interest set by the Bank of England
Price stability
When average consumer prices for goods and services are constant over time, or are rising at a low and predictable rate
“Big ticket items”
Large purchases such as cars or computers
Contractionary monetary policy
Where the Bank Of England raises interest rates to combat rising inflation
Expansionary monetary policy
Where the Bank Of England lowers interest rates to combat falling inflation
Quantitative Easing
Where the Bank Of England makes more money available for financial institutions to lend to households and firms
Note
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