ECONOMICS
MONETARY POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Buy government securities
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Decrease the required reserve ratio
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Increase taxes
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Increase/decrease the bank base rate
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Detailed explanation-1: -What is the Bank of England doing to help bring inflation down? It’s our job to make sure inflation comes down to our 2% target. Raising interest rates is the tool we use to bring inflation down. We can’t always stop inflation from going higher or lower than that.
Detailed explanation-2: -The relationship between inflation and interest rates is interchanging, meaning when one rises, the other will usually fall. The Bank of England base rate is set up to purposely help keep the UK’s inflation target of 2%. When interest rates decrease, there’s an increase in borrowing.
Detailed explanation-3: -We are raising interest rates because inflation is too high. It’s around 10% now and our target is 2%. Raising interest rates is the best way we have to bring down inflation. It means many people will face higher borrowing costs.