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The Impact Of The Central Bank And Long Run Economic Growth On The Economy

1129 words - 5 pages

To what extent is the central bank responsible for stabilizing the economy? Is LREC really vital to economic growth? In this assignment I will look deeper into these questions. This is important because economic stability depends on it, and without giving this topic thought thousands of households could be facing another looming recession.

In this essay I will evaluate the three questions given with regards to the central bank and LREC. The central bank is a country’s main bank, which provides banking services for the smaller commercial banks, and also the government.

Google define, states “a national bank that provides financial and banking services for its country's government and commercial banking system, as well as implementing the government's monetary policy and issuing currency.”

An economy is a system of exchange or trade. The theory of an economy is used to manage its resources, e.g. monetary, etc.

The Central Bank in any modern economy is not just a lender of last resort, but also has the critical role of stabilizing the economy. Explain why this is so and how it carries out this role using the policy instruments it has in its control.
One of the duties of a Central Bank is to be a Lender of Last resort. A lender of last resort is to is an entity that offers financial help to another that is experiencing financial difficulties.

An example of a Lender of Last Resort in the UK is the Bank of England. On 14 September 2007 the BoE was asked by Northern Rock for a bailout as they were experiencing financial difficulty, due to the recession. Subsequently northern rock was nationalised, which means it was brought into state ownership. However being a lender of last resort isn’t the only factor that the central bank plays in stabilising an economy.

The central bank has a list of duties that it may carry out. Main duties of the central bank include; creating monetary policy, providing financial services to the government, public and other official institutions, and also the central bank may be responsible for maintaining the stability of the economy by regulating the financial system.

The Central Bank may regulate the financial system by setting interest rates, managing the countries cold reserves, regulating the banking industry, changing interest, which will have a ripple effect on both inflation and also the countries exchange rate, controlling the countries money supply.
Monetary Policy
The Central bank of an economy may use monetary policy to help support the economy. They may use monetary policy to influence the money supple, the exchange rates of a country, and also they may use monetary policy to set the rate of interest that is offered by the central bank.

Controlling the Countries Money Supply
The Bank of Japan is the central bank of Japan. In the bank of Japan Toshihiko Fukui is the governor. On January 22, 2014 they had a recent meeting regarding monetary policy. At the meeting the Bank of Japan decided,...

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