IntroductionTo what extent is the central bank responsible for stabilizing the economy? Is LREC really vital to economic growth? In this assignment I will examine these questions in more depth. This is important because economic stability depends on it, and without thinking about this topic, thousands of families could find themselves facing another looming recession. In this essay I will evaluate the three questions posed regarding the central bank and LREC. The central bank is the main bank of a country, which provides banking services to smaller commercial banks and also to the government. Google defines, it says, "a national bank that provides financial and banking services for its country's government and commercial banking system, as well as implements the government's monetary policy and issues currency." An economy is a system of exchange or commerce. The theory of an economy is used to manage its resources, such as monetary, etc. The Central Bank in any modern economy is not only a lender of last resort but also has the vital role of stabilizing the economy. He explains why this is so and how he fulfills this role using the policy tools he has under his control. One of the tasks of a Central Bank is to be a lender of last resort. A lender of last resort is an entity that offers financial help to another who is experiencing financial hardship. An example of a lender of last resort in the UK is the Bank of England. On 14 September 2007 Northern Rock asked the BoE for a bailout as it was in financial difficulty due to the recession. Northern Rock was subsequently nationalised, meaning it became state property. However, being a lender of last resort isn't the only factor the c... middle of paper... has ever been before. This was done to increase overall spending, and this also had a knock-on effect on both inflation and the country's exchange rate. Inflation Inflation is the measure of the increase in prices. The central bank can use interest rates to influence spending and therefore demand. Monetary policy and interest affect the money supply, which, as mentioned above, affects the cost of goods and therefore inflation. Exchange Rates Lowering interest rates or selling currency can reduce exchange rates, raising interest rates and buying foreign currency will have the opposite effect as this will reduce demand and reduce the inflation. This is due to the law of supply and demand. If supply decreases, the price will increase. The central bank also affects employment levels as overall spending increases, more employees are needed to sell goods.