Monetary Policy Quiz

What is the primary tool used in monetary policy?

• Interest rates and money supply

• Exchange rates

• Government spending

• Taxation

Who controls monetary policy in the UK?

• The Prime Minister

• The Chancellor of the Exchequer

• The Monetary Policy Committee of the Bank of England

• The European Central Bank

What is the effect of lowering interest rates in an expansionary monetary policy?

• Increased savings

• Decreased investment

• Decreased aggregate demand

• Increased aggregate demand

What is the purpose of contractionary monetary policy?

• To decrease taxes

• To increase government spending

• To decrease aggregate demand

• To increase inflation

What is quantitative easing?

• Increasing government spending

• Reducing interest rates to zero

• Raising taxes to reduce inflation

• Injecting money into the economy by buying financial assets

When is monetary policy less effective?

• During periods of high inflation

• When economic confidence is high

• When commercial banks have excess reserves

• When economic confidence is low

What happens if commercial banks do not pass on interest rate changes?

• Monetary policy becomes less effective

• The central bank loses control over the economy

• Monetary policy becomes more effective

• Interest rates increase automatically

What is the result of a contractionary monetary policy on GDP?

• GDP becomes unpredictable

• No change in GDP

• Increase in GDP

• Decrease in GDP

Which of the following is a component of aggregate demand?

• Consumption and investment

• Interest rates

• Government regulations

• Tax rates

What is the role of the central bank in controlling the money supply?

• Setting tax rates

• Issuing government bonds

• Injecting or withdrawing money through financial assets

• Regulating stock markets