| Why didn’t the Bank of England raise Interest Rates when Inflation was over their Target? | -Monetary Policy aims for Price Stability. But from 2010-2012, Inflation was still High, and yet QE Kept going
-This can be Explained how Britain entered a Economic Shock, and Concerns of entering a ‘Second Dip Recession’
-BoE said its not Needed as Inflation would fall Naturally. Raising % Rates would make it more likely of Another Recession |
| What did Keynes Argue back during the Great Depression? | -Government Spending needs to Occur during a Recession to get the Economy back on Track
-Keynesian Demand Management Policies of Changing Gov Spending was Popular in the Mid 20th Cen
-The UK Experienced Steady Growth and Full Employment during the 50s and 60s. Downturns quite Weak |
| What does Keynes Believe in terms of Recessions? | -Recessions make AD plummet. Keynes believes it took a Long Time for AD to Recover, as Prices and Wages respond Slowly. So that is why the Government needs to Step in, acting as the Boost for the Economy to be Operating well |
| What do Classical Economists believe about Recessions? | -Recessions will be over Quickly as the Economy will have Prices and Wages Adjust very Easily
-Monetarists back this as well |
| What is the Government’s Fiscal Stance nowadays? | -Supply Side Fiscal Policy used for AD Shifts, helping the 4 Objectives. [Tax Cuts for Entrepreneurs]
-Fiscal Policy on Microeconomic Level, influencing Individuals and Firms. [Demerit Goods Taxed, Merit Goods provided directly] or Environment [Green Tax]
-Gov Spending on Specific Regions needing Help [Structural Employment]
-Progressive Taxing redistributing Income and Wealth |
| What was the Funding for Lending Scheme? | -2008 saw Lending from Banks falling. This [2012 July] had Bank of England giving Money to Banks below Market Rates. This meant Cheap Loans
-Scheme closed for Household Lending, when the Housing Market was Fine, and more bias to Small, Medium Firms
-Success is Questioned. Mortgages % Rates and Usage Increased, but little Benefit to Economy. No Scheme however —> Worse Situation |
| What was the Forward Guidance Scheme? | -Central Bank announcing keeping the Base Rate at a Certain Level for a Certain Time or Economic Climate
-This made Firms and Consumers plan Borrowing and Spending without % Rates changing |
| What is Quantitive Easing [QE]
-When is it Used? | -Needed for a ‘Loose’ Monetary Policy to Boost AD when % Rates are Low
-QE Increases the Money Supply, encouraging Spending.
-The Bank of England ‘Creates new Money’ and Buys Assets owned by Financial Institutions, encouraging them to Spend or Lend |
| How did QE Perform during the 2008 Crash? | -Bank of England purchased Assts from Firms [Insurance and Commercial]
-This was slow to work at the Start, as Banks still had Low Confidence
-But then the Banks started to Lend for AD to be Boosted
-Exports may have also Increased as QE makes the Currency worth Less. |
| What is the Danger of QE? | -Financial Institutions may, at the Start, stock up their Reserves, and only Lend when the Economy Improves
-Extra-Lending at times when Inflation is going up makes Demand-Pul Inflation harder to Control |
| Why didn’t the Bank of England raise Interest Rates when Inflation was over their Target? | -Monetary Policy aims for Price Stability. But from 2010-2012, Inflation was still High, and yet QE Kept going
-This can be Explained how Britain entered a Economic Shock, and Concerns of entering a ‘Second Dip Recession’
-BoE said its not Needed as Inflation would fall Naturally. Raising % Rates would make it more likely of Another Recession |
