The Bank of England has the task of setting base interest rates to try and meet the government’s inflation target of 2%. The base rate is the rate at which the commercial banks have to borrow from the Bank of England. The Bank manages the money supply so that commercial banks usually end up having …
Readers Question: Does low inflation always mean low-interest rates? Generally low inflation will lead to low-interest rates. Although in practice there may be some divergence. The UK has an inflation target of CPI = 2%. Therefore, interest rates are used to achieve this target. If inflation falls to below 2% the MPC will cut rates …
For manufacturing investment, the real interest rate is important for determining the viability of investment. Lower interest rates make it cheaper to borrow. Therefore lower interest rates tend to encourage business investment. High real interest rates discourage investment. How interest rates affect the efficiency of investment At lower interest rates, the marginal efficiency of capital …
This e-book concentrates on macro economics, issues such as economic growth, recessions, the credit crunch, inflation and globalisation. It also takes a look at economic history and also in-depth look at recent economic events such as the European debt crisis, deflation, and levels of government debt.
Updated Sept 2015.
Readers Question: what are the reason of dollar appreciation while the world economic situation is not good! i would apprecitae if you provide me a simple comprehensive answer. Many factors would normally make the dollar depreciate (fall in value) US interest rates cut to 1% US current account deficit US entering into recession Uncertainty over …
1) You say depreciation causes inflation for the three reasons you mention, but later, that in the long run, a higher rate of inflation will cause depreciation. So my first question is how are these two phenomena linked? Is ‘long run’ the key; i.e. it takes a prolonged high inflation to cause a devaluation, but …
On Wednesday 16 September 1992, the UK economy was in deep recession, with unemployment of 10% interest rates of 10%, and the Pound was struggling to maintain its value against the D-Mark. As soon as markets opened, financial investors piled in to sell pounds to a beleaguered government, and Sterling fell, reaching the floor of …
Things We Get Wrong About the EconomyWatch this video on YouTube The Government doesn’t actually print that much money The Bank of England is notionally independent, but heavily regulated by the government. Have you ever wondered how much physical cash the Bank of England printed last year? The net amount of notes in circulation increased …