Factors Which Effect Interest Rate Developments Within The United Kingdom

ECN2005: Financial Economics Assignment 2 (replaces ECN2005PS) Anthony Silk (20079491) Factors Which Effect Interest Rates Developments Within The United Kingdom In the UK, Interest Rates are now set by the Bank of England since it was granted operational independence in May 1997, and represent the rate of interest paid on borrowed money or alternatively measure the rate of return on savings. In the following graph we can see how interest rates have fluctuated since 1997; [www.tutor2u.net/economics/topics/monetarypolicy] Such rates are determined by the MPC (Monetary Policy Committee), and have differed over the years due to many different factors, in particular the governments desire to maintain a stable economic system. The following report aims to discuss in detail the various factors that affect such Interest Rate developments. In a very simplistic sense, a key factor that affects changes in real interest rates can be viewed in the following diagram, showing the market for loanable funds. Here, we can see that the total supply of savings is at it highest when interest rates and the quantity of loanable funds are at their highest, and alternatively the demand for credit and loanable funds are at their highest when interest rates are low. By plotting these to curves, we can calculate the equilibrium rate of interest, and would be able to see it move in relation to

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What are the Problems and Possibilities of Economic Monetary Union?

What are the Problems and Possibilities of Economic Monetary Union? European Monetary Union (EMU) was first introduced in 1969 at a summit of the European Economic Community in The Hague, the members arranged to endeavour and reduce the fluctuations in their currencies in order to coordinate national policies. 1 (McCormick). Jacques Delores, in 1989 as the president of the Commission decided to introduce a 3 stage plan designed to increase the movement towards EMU, the plan attempts to fix exchange rates and introduce a single currency, the Euro. This plan was not completed until 2002 when the Euro coins and notes began circulating. In order for members of the European Union to join the Euro they were subject to convergence criteria, which confined the levels of government debt and national debt, inflation rates, exchange rates and interest rates the member country is allowed to have. Converging to these criteria and adopting the Euro has provided many different outcomes, some of which are negative and other which will benefit the economies of the member countries. This essay shall examine the problems and possibilities of European Monetary Union in order to determine whether EMU is beneficial to all that have taken part, and to discover where Economic Monetary Union is headed. In order to be part of the Economic Monetary Union, the member countries adopted the Euro

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