Instead, the various sections will help to explain in a practical way how the economy and monetary policy work, and what factors determine and influence inflation and interest rate decisions. We hope the resource manual and the web site will benefit you not just in the Challenge itself, but also in expanding your understanding of the economy and monetary policy more generally. Monetary policy is, of course, not just about looking at inflation and interest rates. It's also about the growth of the economy, employment and, ultimately, our collective living standards. Target 2 Point 5 invites schools and colleges to assume the role of the Bank of England's Monetary Policy Committee and make a presentation which sets out their views on current economic conditions and future prospects, culminating in an interest rate recommendation aimed at meeting the Government's inflation target.
Interest rates have to be set in the real world - they are a practical policy tool.
Economic theories and concepts can guide our understanding of the economy and help us to explain what we observe around us, both in the economic statistics and first-hand. But they cannot tell us what inflation will be or what interest rates should be. Interest rate decisions depend on an interpretation of economic conditions and events, and judgments about the likely future path of the economy. Many considerations will be relevant to the outlook for inflation - some more than others, and to different degrees at different times. Evidence on the economic picture is often unclear or contradictory.