A Level Economics · Edexcel 9EC0 Theme 2.6 · Monetary policy

The MPC Meeting

You chair the Bank of England's Monetary Policy Committee for three years: twelve meetings with one lever, Bank Rate. Keep CPI inflation at 2% without pushing the economy into recession. Remember that your decisions take months to have an effect.

Step 1 · Choose your three years
The remitKeep CPI inflation at 2%. If it is more than 1 percentage point away, you must write an open letter to the Chancellor explaining why.
The catchRate changes take about 3–6 months to affect spending and 6–9 months to affect inflation. You are always steering for the future, not the present.
Your scoreYou lose points for inflation away from 2%, for output away from capacity, and for sudden rate swings. Two quarters of falling GDP count as a recession.

The Economics Tutor · A simplified model of the UK economy for teaching. Rates affect output after a lag, and output affects inflation after a further lag. The shocks are inspired by real episodes, but the numbers are illustrative.

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