2-J Central Banks, Regulation & Monetary Policy AQA A-level Economics (new spec) MACRO

This is one of a set of Powerpoints (and accompanying Notes/Key Terms sheets) that I have created for my own teaching of the macroeconomic topics in the new (linear) AQA A-level Economics specification (7135). They follow the order of teaching recommended by the exam board and (generally) the AQA-approved textbooks (Powell & Powell, 2015).

Key terms covered in this Powerpoint: (references to the specification):
4.2.4.3 Central banks and monetary policy
• The main functions of a central bank.
• That monetary policy involves the central bank taking action to influence interest rates, the supply of money and credit and the exchange rate.
• The current objectives of monetary policy set by the government.
• The role of the Monetary Policy Committee of the Bank of England (MPC) and how it uses changes in bank rate to try to achieve the objectives for monetary policy, including the government’s target rate of inflation.
• The factors considered by the MPC when setting the bank rate.
• How changes in the exchange rate affect aggregate demand and the various macroeconomic policy objectives.
• The monetary policy transmission mechanism, inc. the relationship between changes in interest rates and the exchange rate.
• How the Bank of England influence the growth of the money supply.
• Students should understand current and recent instruments of monetary policy such as: quantitative
easing, Funding for Lending and forward guidance.
• Students should understand how the MPC of the Bank of England uses changes in bank rate to try to achieve the objectives for monetary policy, including the government’s target rate of inflation.
4.2.4.4 The regulation of the financial system
• Regulation of the financial system in the UK, eg the role of the Bank of England, the Prudential Regulation Authority (PRA), the Financial Policy Committee (FPC) and the Financial Conduct Authority (FCA). (An in-depth knowledge of the PRA, FPC and the FCA is not expected but students should appreciate their role in trying to maintain the stability of the financial system.)
• Why a bank might fail, including the risks involved in lending long term and borrowing short term.
• Liquidity ratios and capital ratios and how they affect the stability of a financial institution. (Students will not be required to calculate liquidity or capital ratios.)
• Moral hazard.