a. Define what is meant by ‘monetary policy’ 10 marks
- Provide a definition for monetary policy ensuring that you explain both the role of the interest rate and the money supply.
- Ensure that you use appropriate sources to support this definition
- You could explain the other form of stabilisation policy that could be relevant
b. Visit the website of the Monetary Policy Committee (MPC) of the Bank of England - http://www.bankofengland.co.uk/monetarypolicy/Pages/overview.aspx - and explain its role within the UK 30 marks
- The MPC are primarily responsible for all aspects of Monetary Policy
- Explain their key objectives
- Use the Bank of England website to obtain a clearer explanation of the role of the MPC and use examples from recent meeting regarding changes that been made recently as well as the potentiation and actual impact of these changes.
- It would be good to briefly explain the members and their roles if possible.
c. “The MPC is likely to raise the Bank of England base rate from 0.5% at the next committee meeting” – do you agree with this statement? Discuss with reference to relevant data 50 marks
- Explain the effects that could occur in the economy if the interest rate was increased
- Present and explain data of relevant factors that could be affected by this decision e.g. GDP figures, inflation figures etc.
- In light of the data and your economic knowledge explain whether or not you believe the interest rate is likely to rise and justify your answer.
d. Explain how your answer to part c represents what is known as ‘policy conflict’
- Explain the macroeconomic variables and objectives
- Explain how changes in the interest rate could affect the macroeconomic variables
- In turn explain how changes in the interest rate could have a desired effect on some macroeconomic variables but an undesired effect on other variables which is known as policy conflict.