7. In the Financial Times article "UK businesses expect prices to soar in the coming year" (3 March 2022) we can read: "British businesses expect inflation to rise at its fastest pace for five years, according to a Bank of England survey, [...] the Bank of England have often quoted high business inflation expectations [...] in recent months to support the need for further monetary policy tightening." (a) Explain why the central bank considers business expectations when making
7. In the Financial Times article "UK businesses expect prices to soar in the coming year" (3 March 2022) we can read: "British businesses expect inflation to rise at its fastest pace for five years, according to a Bank of England survey, [...] the Bank of England have often quoted high business inflation expectations [...] in recent months to support the need for further monetary policy tightening." (a) Explain why the central bank considers business expectations when making
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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part B
![7. In the Financial Times article "UK businesses expect prices to soar in the coming year"
(3 March 2022) we can read:
"British businesses expect inflation to rise at its fastest pace for five years, according to a
Bank of England survey, [..]
the Bank of England have often quoted high business inflation expectations [...] in recent
months to support the need for further monetary policy tightening."
(a) Explain why the central bank considers business exper
decisions on monetary policy.
ations when making
(b) In February 2022, inflation in the UK was expected to increase to close to 6% in
February and March, before peaking at around 7 %% in April. Despite this, the
Monetary Policy Committee in the Bank of England increase the policy rate to 0.25%
to 0.5%, even if some members recommended an increase to 0.75%.
Using the 3-equation model, depict the UK economy in February 2022, and provide
some reasons why the Bank of England did not increase the interest rate to 0.75%
(or higher).](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa6e4e5fd-c65f-4f87-baf5-107beea50a33%2Fcbddc40d-c5f6-4298-964a-7a9bcde5c27e%2F58fuf9_processed.jpeg&w=3840&q=75)
Transcribed Image Text:7. In the Financial Times article "UK businesses expect prices to soar in the coming year"
(3 March 2022) we can read:
"British businesses expect inflation to rise at its fastest pace for five years, according to a
Bank of England survey, [..]
the Bank of England have often quoted high business inflation expectations [...] in recent
months to support the need for further monetary policy tightening."
(a) Explain why the central bank considers business exper
decisions on monetary policy.
ations when making
(b) In February 2022, inflation in the UK was expected to increase to close to 6% in
February and March, before peaking at around 7 %% in April. Despite this, the
Monetary Policy Committee in the Bank of England increase the policy rate to 0.25%
to 0.5%, even if some members recommended an increase to 0.75%.
Using the 3-equation model, depict the UK economy in February 2022, and provide
some reasons why the Bank of England did not increase the interest rate to 0.75%
(or higher).
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