Central banks play a big role in helping the economy during tough times. They mainly do this by changing interest rates. Here are some of the ways they respond:
Lowering Interest Rates: When the economy is having problems, central banks often lower interest rates. This makes it cheaper to borrow money, which encourages people and businesses to spend more. For example, in March 2020, the Bank of England lowered its main interest rate all the way down to 0.1%.
Quantitative Easing (QE): Along with lowering rates, central banks use a strategy called QE. This means they buy government bonds to put more money into the economy. The European Central Bank (ECB) has spent over €2 trillion on this program to help boost economic activity.
Inflation Targeting: Central banks usually aim to keep inflation around 2%. This target helps them decide how much to change interest rates to keep the economy stable.
Statistical Evidence: Research shows that if interest rates go down by 1%, the economy, measured by GDP, can increase by about 1.5% in just a year.
By using these methods, central banks try to support the economy and help it recover during difficult times.
Central banks play a big role in helping the economy during tough times. They mainly do this by changing interest rates. Here are some of the ways they respond:
Lowering Interest Rates: When the economy is having problems, central banks often lower interest rates. This makes it cheaper to borrow money, which encourages people and businesses to spend more. For example, in March 2020, the Bank of England lowered its main interest rate all the way down to 0.1%.
Quantitative Easing (QE): Along with lowering rates, central banks use a strategy called QE. This means they buy government bonds to put more money into the economy. The European Central Bank (ECB) has spent over €2 trillion on this program to help boost economic activity.
Inflation Targeting: Central banks usually aim to keep inflation around 2%. This target helps them decide how much to change interest rates to keep the economy stable.
Statistical Evidence: Research shows that if interest rates go down by 1%, the economy, measured by GDP, can increase by about 1.5% in just a year.
By using these methods, central banks try to support the economy and help it recover during difficult times.