This website uses cookies to ensure you have the best experience. Learn more

The Bank Of England And The 2008 Financial Crisis

766 words - 4 pages

Due to the 2008 financial crisis, the Bank of England employed quantitative easing (an unconventional monetary policy used to stimulate the economy) by cutting interest rates down to 0.5 % and has been keeping it until now. The Bank made the decision to keep QE and the interest rate unchanged in March. Spare capacity (the ability of a firm to produce more of a product than is now being produced) is used by the BoE to justify its use of forward guidance policy (a communicative tool for monetary policy). Low interest rates improved the economy by increasing consumption and investment, which are the components of AD. The AD curve shows the total spending on goods and services in a period of ...view middle of the document...

Therefore, an increase in AD in the short-run aggregate market results in an increase in the price level and an increase in production. The resulting level of production therefore represents an economic expansion.
The money supply will increase as the components of AD (C+I) rise. Figure 2 illustrates the increase in money supply through showing the rightward shift of the MS curve, from MS1 to MS2. The money demand will remain the same (MD). Therefore, increasing the money supply will lower the interest rate from i1 to i2. This is partly due to the increased availability of money. More money around means it is easier to acquire and thus command lower interest rates. However, such an increase in money supply may also increase the inflation rate and possibly cause a hyperinflation if uncontrolled.
The main benefit of low interest rates is its stimulating effect on economy. The BoE can help start businesses spending on goods which helps the economy in the long run and can help consumers to spend more on durable goods. Also the consumers’ demand for products will increase. This will force the firms to try to meet the demands by hiring additional workers which in turn will reduce the unemployment...

Find Another Essay On The Bank of England and The 2008 Financial Crisis

Causes of the 2008 Financial Crisis

972 words - 4 pages Financial crisis The financial crisis occurred in 2008, where the world economy experienced the most dangerous crisis ever since the Great Depression of the 1930s. It started in 2007 when the home prices in the U.S. Dropped significantly, spreading very quickly, initially to the financial sector of the U.S. and subsequently to the financial markets in other countries. The victims in the United States were: the largest commercial banks, the

The never-ending financial crisis of 2008

762 words - 4 pages something is not working, go back to the drawing board and try again. Maybe this economic recession needs a little help from the “invisible hand.” Works Cited Colander, David. Macroeconomics 9th Edition. The McGraw-Hill Companies, Inc., 2013. Putnam, Robert D. Crumbling American Dreams. New York Times, Late Edition, 2013. Sum, et, al. How Are We Doing?: The Great Recession of 2008-2009 and the Blue-Collar Depression. M.E. Sharpe Inc., 2010. Wisman, Jon D. Wage Stagnation, rising inequality and the financial crisis of 2008. Cambridge Journal of Economics, 2013.

The Financial Crisis and UK Bank Scandals

1273 words - 6 pages The Financial Crisis and UK Bank Scandals In September 2007 the UK banking industry began exhibiting symptoms of the financial crisis that started in America in 2006. Northern Rock was in trouble and had to ask the Bank of England for help. When news of this got out customers started queuing around the block to withdraw their money. In 2008 Northern Rock was nationalised, and in 2012 it was bought by Virgin Money. Today the banking industry

Financial Crisis of 2008

2303 words - 9 pages financial crisis, also known as the financial crisis of 2008 (Lagos). Involvement of Private Sector The Reserve Bank has been verbal that they are uncomfortable about wealthy Asian governments using savings when they use the savings to shop around for assets (Saulwick). High levels of public sector involvement could hurt financial markets and the returns countries are earning on their foreign investments (Saulwick). Dr. Lowe, the person that said

The Problem with Banks and the Global Financial Crisis 2008

1128 words - 5 pages themselves for the future. The system of banks, promotes the consumption and therefore improves the economy of the country. However, banks also hold a great risk. The Global Financial Crisis in 2008 was caused by the decline of the bank the “Lehman Brothers Holdings Inc.”, because the costumers could not repay their debt to the bank. The decline of one bank often leads to the decline of other banks, because banks interact with each other by

Awareness of Risk and 2008 Financial Crisis

2322 words - 10 pages have led improvements beforehand, it is behavioural and psychological factors that worth greater attention to. The 2008 Financial Crisis seemed to come out of blue and shocked the whole world in the first place but was soon concluded by experts as the consequence of systemic risk. (Federal Reserve Bank of Atlanta, 2009) Characterizing such a risk are three viewpoints, first, universal losses triggered by a single event (IBS, 2001), second

Awareness of Risk during the 2008 Financial Crisis

2210 words - 9 pages will try to illustrate the hidden effects of human behaviours on awareness of risk during 2008 financial crisis. Admittedly, however, plausibility still exists in partial improvements beforehand. 2008 Financial Crisis seemed to come out of blue and shocked the whole world in the first place but was soon concluded by experts as a consequence of systemic risk. (Federal Reserve Bank of Atlanta, 2009) Characterizing such a risk are three consequences

Factors That Influenced the Global Financial Crisis of 2008

631 words - 3 pages Since the years of the great depression in the 1930s, the global financial crisis of 2008 is arguably the worst to have hit the world. The crisis began with the escalation of prices in the property market creating a liquidity crisis. It had massive consequences in varying sectors of the economy. The financial, property and mortgage sectors were hit hard by the crisis. Large financial institutions collapsed while stock markets experienced

Bank CEO Incentives and the Global Financial Crisis

3331 words - 13 pages risk measures of banks. Fahlenbrach and Stulz (2009) find that U.S. bank CEOs with more equity incentives suffered enormous wealth losses during the 2008 financial crisis and that their firms performed worse than others. Murphy (2009) makes a similar point, showing that the average executive bonuses at TARP banks have dropped by 84%, as compared to a decline of 20% for non-TARP banks. As both of these studies suggest, the extent of the losses

How the 2008 Financial Crisis Affected the Economy

817 words - 4 pages Some issues that arise from the 2008 financial crisis that directly affected the economy on a national scale as well as on a international scale were all interlinked which could have been attributed to things such as the housing market bubble burst which securities that may have been tied to this sector leveled out in 2006 and had a sharp decline in 2007. In the year of 2006 interest rates took a less aggressive approach and they were

2008 financial crisis

2981 words - 12 pages Burak Çetin MSc International Business IBS, Budapest 8 November , 2014 2008 Financial Crisis Bank failures, billions of dollars soared, global growth lowered, impotent governments. Financial capitalism is in crisis.Media loop line numbers of the crisis, the stock market falls, the huge losses of some banks without necessarily really explain What is happening in simple terms. But what are the reasons of the global financial crisis? . And

Similar Essays

The 2008 Financial Crisis Essay

1206 words - 5 pages , there are serious mistakes in the UK regulatory framework, which lead to the regulator mistaken estimation to the existing problems in the financial system. Example : UK Northern Rock was a British bank, which was best known for becoming the first bank affected by the liquidity risk seriously in 150 years, during the credit crisis in 2007.(脚注) The bank sought and received a liquidity support facility from the Bank of England,(脚注) following problems

The 2008 Financial Crisis Essay

1529 words - 6 pages the financial crisis. In an agreed move, central banks of several nations chose synchronized action to provide liquidity hold up to financial institutions. The scheme was meant to redeem the interbank market. By November 2008, the federal funds and reduction rate had been reduced to 1% and 1.75%, respectively (Angelides et al, 2011). Central banks in Switzerland, China, Sweden, England, Canada, Sweden, and the European Central Bank also decided

The 2008 Financial Crisis Essay

2612 words - 11 pages The 2008 financial crisis witnessed how fragile financial institutions and the whole financial system could be. In the U.S., lots of banks touched the edge of failure, requiring extensive assistance from the government. Some received bailouts in forms of capital injection or loss sharing agreement, while others entered shotgun marriage with healthier financial institutions arranged by Federal Deposit Insurance Corporation (FDIC). Among banks

The Financial Crisis Of 2007 2008 And The Federal Reserve

3067 words - 13 pages Did the monetary policy of the Federal Reserve lead the financial crisis of 2007-2008? Outline Introduction Literature review and critical discussion -1. How could the Federal Reserve prevent and solve financial crisis? – The function of Federal Reserve. -2. The background of the financial crisis.—what kind of monetary policy the federal reserve made? -3. The defending for the low interest policy. -4. The against to the monetary policy