The Impact of the Central Bank and Long run Economic Growth on the Economy

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Introduction
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 c...

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...y ever been before. This was done to increase overall spending, and also this had a ripple effect on both inflation and also the countries exchange rate.

Inflation
Inflation is the measurement of the increase in prices. The central bank may use rates of interest to affect spending and thus demand. Monetary policy and interest affects the supply of money, which as mentioned earlier, effects the cost of goods, and therefore inflation.
Exchange rates
Lowering interest rates or selling currency can reduce the exchange rates, raising interest rates and buying foreign currency will have the opposite effect as this will reduce demand and reduce inflation. This is due to the law of supply and demand. If supply decreases, the price will go up.
The Central bank also effects employment levels as general spending goes up, more employees are needed to sell produce the goods.

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