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WorksheetsMonetary Policy
Total questions: 10
Worksheet time: 6mins
Monetary Policy relates to decisions about...
Interest rates & taxes
Taxes & government spending
Interest rates & the money supply
Government spending & the money supply
Who sets interest rates in the UK?
The government
The Monetary Policy Committee
The Queen
Martin Lewis
What is the MPC's official target when setting interest rates?
To have no inflation in the economy
To have 2% inflation in the economy
To have 5% inflation in the economy
To have 10% inflation in the economy
If the MPC fail to meet the 2% inflation target, they must...
Write a letter to the Queen to apologise
Write a letter to the Chancellor of the Exchequer
Write a letter to all UK banks
Write a letter to all UK firms
When interest rates are cut, which of the following should happen (in theory)? Tick all the correct answers...
Households spend less as there is a greater incentive to save.
Firms spend more as it is cheaper to take out a bank loan.
Households spend more as their monthly mortgage payments are lower (variable rate mortgages).
Households spend more as there is less incentive to save.
What is the process of injecting more money into the economy commonly known as?
Qualitative easing
Quantitative easing
Supply Side Policy
A tariff
According to Fisher's Quantity Theory of Money...
When additional money is injected into the economy, prices are likely to fall
When additional money is injected into the economy, prices are unlikely to rise
When additional money is injected into the economy, prices are likely to rise three times as much
When additional money is injected into the economy, prices are likely to rise by the same proportion
Which of the following is the correct formula for Fisher's Quantity Theory of Money
M x V = P x Y
AD = C + I + G + (X -M)
SPICED
E = MC2
According to Fisher's Quantity Theory of Money...if the Money Supply is £20m, Velocity of Circulation is 4, Real GDP is £10m, then the average Price Level is...
£2
£4
£6
£8
When interest rates are cut, consumption and investment should both rise (in theory). However, why might they not rise? Tick all the correct answers...
Because of a lack of confidence, causing households & firms to save / delay purchases
Because average incomes went up at the same time that interest rates were cut
Because income tax rates were increased at the same time that interest rates were cut
Because the price level rose at the same time that interest rates were cut
