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QUES: Write an essay of maximum 2,000 words on the following question Describe, including a Philips curve diagram, how and why the output gap between equilibrium and actual output is used by policymakers to target inflation. With reference to the IS/PC/MR model and the extract from Minutes of the Monetary Policy Committee for January 2015, explain the Bank of England’s decision to hold interest rates at 0.5% and to maintain asset purchases, known as Quantitative Easing (QE). ADDITIONAL INFO: Describe the Inflation Targeting Model (IS/PC/MR) and then analyse the MPC Minutes in relation to relevant variables of the model that has enabled the MPC to arrive at final decision regarding the monetary policy instruments, i.e., to keep interest rate at 0.5% and leaving QE on hold. Review the Minutes, i.e., analysing the current and medium-run state of the economy first and then apply the model to analyse the thinking behind MPC final decision to keep interest rate at 0.5% and to withhold
