Money & Economic Foundations

They don't run the economy. They set the conditions.

The ECB, the Federal Reserve, the Bank of England. None of them decides a single price — and all of them shape the ground every price sits on.

ECB target, medium term2%

Goals in the Fed's dual mandate2

Central banks named here3

That mismatch is normal. Watch what happens when everyone turns up at once.

CALM

Depositors withdraw faster than loans can be called in

Other banks stop lending to each other — nobody trusts the balance sheets

Credit dries up for companies and households

Investment is cancelled and jobs are at risk

Nothing unusual yet. Short-term deposits, long-term loans — that's just how a bank works.

Tap each to see what it actually means in practice.

This is the balancing act. There is no setting that's simply "safe".

Where the policy rate sits BALANCED

Cost of credit for firms and households neutral

Risk of inflation, bubbles and excess debt contained

Risk of choking the economy contained

Roughly balanced: credit is available without obviously fuelling excess.

A central bank can steer conditions and expectations. These it cannot do.

Answers come straight from this lesson. Submitting completes it.