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Macro Economics - Essay Example

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Effects of Assets Purchases by Bank of England on British Economy Name Student number Institution Subject Lecturer Date Introduction Inflation is the situation in which, the price of assets in the economy goes up over time. In United Kingdom, the central bank anticipates the price of assets to continue growing at an average of two percent each year (Quantitative Easing Explained Pamphlet, p.7)…
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Download file to see previous pages 2011, p.204. The central bank of England has a duty to regulate the amount of money in the economy through various instruments at its disposal hence stabilizing economic inflation. These strategies are used by the central bank of England to control the rate of inflation, either by encouraging the public to spend more, or lowering their spending rate depending on the prevailing economic conditions (Joyce, et.al. 2010, p. 176). Central bank applies both conventional and unconventional strategies to regulate the rate of inflation in United Kingdom. In order for the central bank to plan the means they will use to manipulate the rate of inflation in the economy effectively, they should be able to predict the trend of economic advancement at least two years in advance. When the central bank of England increases the amount of money in circulation, they encourage public to spend more, thus pushing the rate of inflation high (Benford.et.al, 2009, p.48). If the central bank decreases the amount of money in circulation, they will discourage people to spend more hence reduce the rate of inflation. Asset Purchases financed by Central Bank Money: Quantitative Easing High inflation results to overspending by both individuals and business. This results to decline in saving power of the consumers (Benford.et.al, 2009, p.47). It also affects the lending power of the financial institutions. The central bank of England has mandate to regulate the rate of inflation of the country by playing around with the interests which they charge the financial institutions. During the time of high inflation, the central bank of England will increase the interest rates of the lenders. This high interest rate has an effect of reducing the lending rate so as to lower the rate of spending. The central aims to achieve this by discouraging borrowers from acquiring expensive loans. As the individuals and businesses borrow fewer funds from the financial institutions, the money in circulation ...Download file to see next pagesRead More
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