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Lecture notes Unit 4 - Making markets work
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These notes helped me get an A* in A Level Economics, covering all aspects of the specification, plus hints of real world context.
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4.5.3 The role of the central bank• Central bank manages the currency and money supply for an economy
Implementation of monetary policy
• Central bank acts to influence the manipulation of interest rates
• In UK MPC alters interest rates and controls supply of money
• Bank controls base rate which ultimately controls interest rates
Banker to the government
• Provides services to central government
• It maintains and operates deposit accounts of the government
• Central bank also manages public debt and advice government
Lender of last resort
• BOE is this
• Only used if there is no other way of obtaining money
• If institution risky or close to collapse the bank may lend them money
• It can protect individuals who deposit funds in bank
• Banks avoid this as it suggests they are experiencing financial disaster
Role in regulation of banking industry
• Governments might regulate banks with regulation and guidelines
• Helps ensure behavior in banks is clear
• Banks have an influence on how economy is run
• PRA & FCA regulate financial firms to ensure they are being honest to customers
• FCA also promote competition
• PRA promotes safety and stability of banks
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