Applied Economics Essay Example | Topics and Well Written Essays - 2000 words

Applied Economics - Essay ExampleAn independent Monetary Policy deputation was launched in 2012 as a subsidiary of the bank to take relevant action in articulate to eliminate or reduce operational risks with a mission of leveraging and increasing the resilience of the UK fiscal system (Buckley & Desai, 2011). The direction is also charged with supporting the economic policy of the government. Managing pretentiousness Types of inflation Demand-Pull flash In demand-pull inflation, inflation is solely caused by increases in hoard up demand. This inflation develops when the household, government, business and foreign sectors unitedly try to purchase more output than the deliverance is able to produce. Demand pull inflation results when aggregate demand increases beyond aggregate tag on causing shortages in the preservation. This type of inflation is can be sustained with an increase in the monetary base (Buckley & Desai, 2011). Cost-Push Inflation In, cost-push inflation, infla tion results from decreases in aggregate supply due to increases in cost of ware. This type of inflation arises when the cost of using labor, capital, land, or entrepreneurship rises. This means that the production possibilities edge is reducing in size closer to the origin, causing it to bump down against the aggregate demand. The ultimate result is inflation. ... Expansion of fiscal and monetary base cause excess demand and as a result, inflation increases. One of the key responsibilities of the bank of England is maintaining monetary stability. This means low inflation, stable prices and confidence in the UK silver. Price stability is defined by the inflation target set by the government, which the bank preys to stomach by the decisions taken by the Monetary Policy Committee. The Monetary Policy Committee is a delegation that consists of nine experts who meet every month at the bank to discuss and review the performance of the sparing and decides on the most effective way t o set the monetary policy to achieve the rate of inflation of 2% set by the government (2012). This committee votes on the bank rate at its meetings and decides whether it is chic to employ quantitative easing or not, and if so, how much money should be injected into the economy. The monetary policy committee makes its decision independently without the intervention of the government (Toporowski, 2012). The principal aim of the bank is to protect the value of the currency based on what it is able to buy-an increase in prices implies inflation, which lowers the value of the currency. The monetary policy is created to achieve this aim and developing a structure for non-inflationary economic growth. The monetary policy of the bank of England controls inflation by influencing the bear on rate at which money is lent and through quantitative easing (QE)-injecting money directly into the economy by buying assets. This implies that the banks mechanisms of managing inflation through moneta ry policy budges towards the quantity of money availed in the economy rather than the interest rate at which the bank borrows or lends money to