Monetary Policy/Macro Quiz

Which of the following is not a government Macroeconomic objective?

• •  Balance of Payments

• • Zero inflation

• •  Low unemployment rate

• • Protection of the environment

Answer explanation

Inflation targets are 2% not 0% - want a steady inflation increase as this suggests economic growth

What are the 2 policy instruments of Fiscal Policy?

• • Interest rates and money supply

• •  Supply side policies

• • Taxation and expenditure

• • Government grants and subsidies

What is Aggregate Demand?

• • Demand that is increasing

• • A general increase in the price of goods

• • Total demand in the economy

• • An alternative to CPI

What is Monetary Policy?

• • Use of interest rates and money supply

• • Printing of more bank notes

• • Government taxation and expenditure

• • A measure of inflation

If national income increased by £83 million when the government injects £50 million on an infrastrastructure project, what is the value of the multiplier?

• 1.66

  
  

• 0.6

• 60

• 6.2

Answer explanation

The multiplier (k) = Total increase in national income (AD)/Initial injection

= £83million/£50million

= 1.66

In 2020, the Bank of England estimated the marginal propensity to consume for UK households was on average 0.4

Calculate the value of the multiplier for the UK in 2020. 

• 1.66

• 16

• 2.5

• 3.2

Answer explanation

The multiplier (k) = 1/1-MPC

1/1-0.4 = 1/0.6 = 1.66