A-Level - Monetary Policy

What is the aim of monetary policy?

• A. to ensure a balanced budget in the long run

• B. to influence aggregate demand

• C. to influence aggregate supply

• D. to reduce price stability

Which of the following is a monetary policy tool?

• A. investment grants

• B. maximum price

• C. money spent on education

• D. increase in interest rate

What effect is an increase in the money supply likely to have?

• A. decrease inflation

• B. decrease government expenditure

• C. increase consumer spending

• D. increase unemployment

Which circumstance would reduce the effectiveness of expansionary monetary policy?

• A. domestic firms being reluctant to invest

• B. foreign firms being reluctant to sell products to domestic consumers

• C. households spend more money

• D. the government sets a deficit budget

Which problem would be most likely to cause a central bank to increase the money supply?

• A. budget surplus

• B. cyclical unemployment

• C. demand-pull inflation

• D. economic boom

What effect is an increase in the rate of interest likely to have on consumer expenditure and investment?

• A

• B

• C

• D

In which circumstance is an expansionary monetary policy most likely to reduce a country’s economic performance?

• A. its aggregate demand is low

• B. its economic growth rate is negative

• C. its inflation rate is below target rate

• D. its inflation rate is above target rate

Which policy tool is a contractionary monetary policy tool?

• A. a decrease in the exchange rate

• B. a decrease in the rate of interest

• C. a restriction on bank lending

• D. a purchase of government bonds by the central bank

What would indicate that a central bank is using a contractionary monetary policy?

• A

• B

• C

• D

Which combination of a fiscal policy tool and a monetary policy tool is a government most likely to use to reduce unemployment?

• A

• B

• C

• D