Full transcript
Right, let's get going, we've got a lot to cover today. Last week we looked at what inflation is and how it's measured. Today we're looking at what the central bank does to keep it under control.
And before I forget: the midterm isn't on the 30th anymore, we're moving it to November 6 because it clashed with another exam. Write that down.
Okay. What's the ECB's main tool? Interest rates. When the ECB raises rates, borrowing gets more expensive, households spend less and companies invest less. That cools the economy down and, over time, brings inflation down. But careful, this doesn't happen from one month to the next.
This is what we call the transmission mechanism. First interbank rates move, then mortgage rates and business loans, and in the end consumption and investment…