Explaining Factors Causing Future Banking Crisis in UK

ECONOMICS FOR
BUSINESS

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
PART A...........................................................................................................................................3
Explaining the important factor that may cause future banking crisis in UK.............................3
PART 2............................................................................................................................................6
Use of monetary transmission mechanism to explain how an interest rate reduction can
improve the rate of economic growth of real economy..............................................................6
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Business economics is the field which studied the financial, organizational and market
related issues faced by the corporation or government. The present study will highlight the
importance of credit creation theory of banking and quantity theory of credit in order to explain
the important factors which causes future banking crisis. Further, by using monetary
transmission mechanism theory, study will determine how the interest rate reduction can
improve the rate of economic growth in the real economy by considering the interest rate decline
from 5.75% to 0.05%.
PART A
Explaining the important factor that may cause future banking crisis in UK
Majority of the money in the economy is creates by the commercial banks such that
around 3% of the money in circulation. Research also indicate that around 97% of the money
within UK economy is consist of money which circulated by commercial banks, not Bank of
England. It is evaluated that there is a range of money available in UK which includes bank
deposits.
It has been evaluated that money supply is directly related with gross domestic product
(GDP). Thus, as he GDP increases there is a increase the Broad money in the market of UK. In