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Policy Instruments (AS)

Monetary policy: Bank of England and the Monetary Policy Committee, Inflation target

  • 3 things to know
  • AS Units 1 and 2

Overview

Recall questions on The Bank of England and the Monetary Policy Committee, The inflation target.

What you need to know

Answer each one before you reveal it.

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Key term

Which committee within the Bank of England is responsible for financial stability?

Key term

Who sets the inflation target that the Bank of England must meet?

Key term

State the UK inflation target.

Questions from this subtopic

Each one with the model answer underneath.

  1. 1

    What is the Bank of England's principal monetary policy responsibility?

    Model answer

    It is responsible for maintaining monetary stability by meeting the inflation target set for it by the government.

  2. 2

    Which committee within the Bank of England is responsible for financial stability?

    Model answer

    The Financial Policy Committee.

  3. 3

    What does it mean to say the Bank of England is the lender of last resort?

    Model answer

    It stands ready to lend to solvent banks that face a temporary shortage of liquidity when no other lender is willing to provide funds.

  4. 4

    Why does the lender of last resort function matter for the wider economy?

    Model answer

    It stops a temporary shortage of cash turning into insolvency and a run on the bank, preventing the loss of confidence from spreading to other institutions and the payments system.

  5. 5

    What is the Monetary Policy Committee?

    Model answer

    It is the committee at the Bank of England responsible for setting monetary policy, principally Bank Rate, in order to meet the inflation target.

  6. 6

    How many members sit on the Monetary Policy Committee and how are its decisions reached?

    Model answer

    It has nine members, each with a single vote, and decisions are taken by majority at meetings held eight times a year.

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