Monetary Policy and Quantitative Easing

ONLINE EXAM

Table of Contents
QUESTIONS .................................................................................................................................3
3...................................................................................................................................................3
5...................................................................................................................................................4
REFERENCES...............................................................................................................................1

QUESTIONS
3.
Monetary policy are the policy which is formulated by the central government and
control the money supply in the country. Central government influence the money supply in
economy and cost to borrow it. UK central bank uses the main 2 monetary policy in the country
which are interest Bank rate and Quantitative easing.
Bank Rate is the rate which is the interest rate paid by commercial bank to central bank
that hold the money. Bank changes there interest rate when the central bank changes the rate of
lending the money. Higher the interest rate change by commercial bank when there is an
inflation in the country (Auer and Papies, 2020). When the economy is at inflation point with
high supply of money, central bank increase the bank rate in the country that result in expensive
borrowing and leads to downfall in inflation and back to balance economy. Whereas, is the
economy is faces the deflation in country with low supply of money, bank rate is charge low by
the central bank and commercial bank which results in more borrowing and lending of money
that brings the deflation period to balanced point in country.
Repo rate is the rate which is given by the central bank to commercial bank when there
is excess of money supply in market. Commercial banks lend their excess money to central bank
and interest rate is given to commercial bank is high, If the country is facing huge deflation and
crises in the economy, central bank give less interest rate on borrowing money to commercial
bank (Gregor and Melecký, 2018).
Reserve repo rate is the rate where the commercial bank deposit excess money to
central bank where commercial bank is given interest on the money deposited. This is done
when there is excess of money supply in the market and if the there is deflation in the market the
rate is very low in market.
Quantitative easing is the tool of central bank which used to inject money directly in
the economy of UK. Money is either in the form of physical I.e. banknote or in the digital form
I.e. in the money in bank account. This tool involves to create digital money and further used to
purchase government bonds (Huh and Infante, 2017). This is also known as assets purchase. The
tool is used to boost the economy by increase the spending and investment of people. This is
done through large scale of purchasing of government bond with lower interest rate which result
in low interest rate are offered on loans like mortgage loan or business loan which affect the