Economics- Edexcel 4.4.3
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| show | monetary policy function, financial stability and regulatory function, policy operation functions, debt management
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| show | setting base rate, deciding on QE, possible exchange rate intervention in managed floating or fixed
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| show | supervision of stability of wider financial system to reduce systemic risk, prudential policies designed to maintain financial stability during times of crisis and high volatility
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| policy operation functions | show 🗑
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| debt management | show 🗑
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| show | promote monetary and financial stability
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| Monetary stability means | show 🗑
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| Monetary policy committee | show 🗑
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| show | monetary policy committee
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| show | reducing nominal and real interest rates, expand the supply of credit from the banking system, depreciation of the external value of the exchange rate
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| Deflationary monetary policies | show 🗑
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| show | increase AD
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| Aim of deflationary monetary policy | show 🗑
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| show | when the nominal interest rate is close or equal to zero and central banks find that they have run out of room to stimulate AD during a slowdown or recession
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| Why might a liquidity trap happen? | show 🗑
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| How to overcome a liquidity trap | show 🗑
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| Quantitative easing | show 🗑
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| show | how much income an investment generates, separate from the principal
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| show | wealth effect, borrowing cost effect, lending effect, currency effect
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| wealth effect | show 🗑
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| show | QE lowers the interest rate on long term debt
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| show | QE increases the liquidity of banks and increased lending from banks lifts incomes and spending in the economy
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| currency effect | show 🗑
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| Main regulators of the UK financial system | show 🗑
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| FPC | show 🗑
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| PRA | show 🗑
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| FCA | show 🗑
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| CMA | show 🗑
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| Main aims of financial market regulation | show 🗑
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| Main role of FPC | show 🗑
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| What does the FPC do? | show 🗑
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| show | tell commercial banks and other lenders to increase their capital buffet to help absorb unexpected losses on their assets
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| show | aim to increase the financial system's resilience to shocks by addressing identified systemic risks
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| Micro-prudential policy | show 🗑
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| Main role of PRA | show 🗑
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| show | insurance providers, buy-to-let mortgage lenders, credit unions
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| Liquidity ratio | show 🗑
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| show | requires commercial banks to keep enough liquid assets to get through a 30 day market crisis
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| show | cash & balances with central banks + government bonds / bank’s total assets
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| show | measures the funds a bank has in reserve against the riskier assets it holds that could be vulnerable in the event of a crisis
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| undistributed profits | show 🗑
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| show | 2%
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| show | upswing in credit cycle, downswing in credit cycle
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| show | commercial banks are required to build up extra capital reserves
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| Downswing in credit cycle | show 🗑
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| Leverage ratio | show 🗑
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| Leverage ratio formula | show 🗑
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| show | more that the bank or building society relies on debt to fund their activities
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| show | assess commercial banks’ ability not just to withstand severe shocks but to maintain the supply of credit to the real economy under severe pressure
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| show | tail end risks
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| show | economic outcomes that lie well outside the mainstream forecasts
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