Thursday, 6 February 2014
Central Bank interventions
When many people have no income or a job, they are not capable of paying taxes anymore. This causes the price of goods and services to go down, also called deflation. Inflation is when prices rise rapidly making people use up their money because the next day, prices will rise again. However, deflation is more fatal to the economy than inflation. When deflation occurs, central banks intervene in order to stabilize the economy. Since central banks are able to print and produce more notes and coins, they can lend the money to the commercial banks. In addition, they can lower interest rates for loans which allows people to lend money easier. When the country/citizens are capable of paying taxes again, the country will be able to run the economy again.
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How have the central banks intervened in countries like Spain and Greece? has this been helpful?
ReplyDeleteWhat caused the banking crisis of a few years ago?
The problem that caused the lack of money in Spain and Greece is that the country's central banks became bankrupt. This is because Central banks=The country's revenue. Therefore the EU central bank lend money to the country to allow them to recover
DeleteHow do deflations occur? Why is deflation more fatal than inflation? Why do people have no income or job?
ReplyDeleteDeflation occurs when people have less income, and it is more fatal to the economy because this means that the country don't have enough money to recover anymore. This also means that the country is starting to live in squalor.
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