OCR Eco: Chap 7 Monetary policy

What happens when the Bank of England lowers interest rates?

• Borrowing becomes more expensive

• Borrowing becomes cheaper

• Inflation increases

• Spending decreases

What is the effect of raising interest rates by the Bank of England?

• Encourages borrowing and spending

• Reduces the cost of borrowing

• Increases the cost of borrowing and reduces spending

• Decreases inflation

What is the goal of the Bank of England when it reduces the money supply?

• To stimulate economic growth

• To increase inflation

• To curb inflationary pressures and maintain price stability

• To increase government spending

What is the primary goal of setting inflation rate targets by the Bank of England?

• To increase government revenue

• To maintain price stability and promote economic growth

• To reduce unemployment rates

• To increase foreign investments

What is Quantitative Easing?

• A policy to reduce government spending

• A policy to increase taxes

• A policy to buy large quantities of financial assets to increase money supply

• A policy to reduce interest rates

What might be necessary to achieve the desired macroeconomic objectives when monetary policy alone is insufficient?

• Increasing government debt

• Implementing fiscal policy and other complementary measures

• Reducing government spending

• Increasing foreign aid

What is the impact of monetary policy on economic growth described as?

• Immediate and predictable

• Slow and uncertain

• Fast and certain

• Negligible and irrelevant

What do exchange rates determine?

• The cost of borrowing money or the return on investment.

• The value of one currency in relation to another.

• The total amount of money in circulation in an economy.

• Specific goals set by governments and central banks to maintain price stability.

What does the transmission mechanism refer to?

• The actions taken by a country's central bank to manage and control the money supply and interest rates.

• The cost of borrowing money or the return on investment.

• How changes in interest rates and the money supply affect the economy.

• The value of one currency in relation to another.

What can central banks do when interest rates reach zero?

• Increase the money supply.

• Use alternative measures such as quantitative easing or fiscal policy.

• Decrease the money supply.

• Set specific goals to maintain price stability.