How the Bank of England can influence the growth of the money supply
The Bank of England uses several tools to control how much money circulates in the economy. These tools include changing interest rates, adjusting reserve requirements, and buying assets through quantitative easing.
Formula
Money Supply Growth ↑ ← Bank Rate ↓ / QE ↑
Real World
In 2020, the Bank of England cut the bank rate to 0.1% and expanded quantitative easing to £895bn to prevent a collapse in money supply and credit during the COVID-19 pandemic.
Exam Focus
When asked to 'explain' BoE money supply control, link each tool to its transmission mechanism to credit creation.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
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