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The credit crunch created massive deflationary pressures in the economy. The government have attempted to rectify this in a numberof ways.
• monetary policy: the Bank of England has reduced its repo rate to 0.5 per cent and introduced a massive programme of quantitative easing. This allows the bank to print money in order to buy assets. So far it has been used to purchase gilt edged securities but its scope could be extended to encompass other assets
• fiscal policy: the government has borrowed heavily in order to support the banks and has effectively taken control of Northern Rock, Lloyds and Royal Bank of Scotland. It has also reduced the rate of VAT to 15 per cent. A “cash for clunkers scheme” has been introduced to increase demand for new cars
• exchange rate policy: talking down the value of the pound, and the use of quantitative easing.
queen babito answered the question on July 9, 2018 at 07:10
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