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Evaluate the potential effectiveness of ECB's monetary policy decision on the recent quantitative easing programme within the Rurozone economy - Essay Example

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The central banks cannot control the prices of things in the market and thus by controlling the lending rates at which banks and other financial institutions offer credits interest rates to clients and financial institutions the affect the price rigidity of goods and services in…
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Evaluate the potential effectiveness of ECBs monetary policy decision on the recent quantitative easing programme within the Rurozone economy
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Download file to see previous pages le tend to borrow less thus decreasing consumption of goods and services in the market as the income in household decreases, this reduces the rate of demand of goods and services making unemployment a major issue as people are retrenched and companies do not employ people (Tenreyro, 2008). This in turn affects the GDP of the country negatively.
This paper focuses on the Eurozone and the effects of the Quantitative Easing policy introduced by the European Central Bank. The Eurozone is a term used to refer to all the countries that use the Euro as their means of trade within Europe. It compromises of 17 countries which are Germany, Austria, France, Belgium, Finland, Spain, Slovenia, Portugal, Slovakia, Italy, Malta, Cyprus, Netherlands, Luxembourg, Estonia, Greece and Ireland (Gunyé, 2004), each with very different economies. Some are developed while others are struggling to find their place in the market making it very difficult to have a one size policy that’s fits all. Some countries like Germany do have a stronger economy (Anderson, 2012) compared to others like Greece that have a developing or not very well established economy. These countries within the Eurozone like all other countries have their central bank named the European Central bank which was established in 1998 to regulate prices of commodities especially equities through making monetary policies for countries within the Eurozone (Dominguez, 2006). The first monetary policy effected by the Euro zone in 2008 (Erçetin, 2014) leading to a euro crisis as the ECB increased the rates of borrowing making achieving loans for financiers of firms or clients very difficult (Ciro, 2013). This lead to fewer consumption of goods and services by consumers that affected the demand curve as consumption reduced which eventually lead to inflation. This ended up affecting the rate of the currency the Euro as domestically produced goods became more expensive than the imports also affecting inflation, unemployment ...Download file to see next pagesRead More
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