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Essay plans Unit 4 ECON4 - Economics: Monetary Policy $10.18   Add to cart

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Essay plans Unit 4 ECON4 - Economics: Monetary Policy

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Detailed essay plans on monetary policy using past paper questions.

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  • August 7, 2024
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  • 2024/2025
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Monetary policy essay plans

Explain how the monetary policy transmission mechanism works when the Monetary Policy
Committee (MPC) raises Bank Rate. (15)

Discuss the importance of low interest rates in bringing about sustained economic growth in an
economy such as the UK. (25)

Intro

 Low interest rates
 One of the central bank’s roles is to set the base rate
 Have a profound impact on investment, consumption and overall economic activity
o All contribute to economic growth

Stimulate investment

 Lowers borrowing costs for businesses
o Make capital more accessible
o Increased corporate investment
 Encourages innovation and investment
o Businesses more willing to take risks
o Invest in R&D and long term projects
 LRAS shifts outward
 Multiplier effect
o AD shifts outwards twice

Boost consumer spending

 Affordable loans for households and individuals
 Increased disposable income
o Less saving because it is less attractive
o More money to spend on rest of economy
 Increased investment with disposable income
 More enterprise growth

Housing market

 Low mortgage rates
 Higher demand for homes
o More construction
 Houses are huge assets
o Purchase of huge financial assets stimulates growth

Export competitiveness

 Depreciation of the currency
 Enhances exports
 Domestically produced goods more competitive
o Increases productivity and production in UK
 Improved trade balance
o More competitive exports
o Reduced imports
 Hot money flows

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