The table below shows four possible combinations of macroeconomic conditions in an inflation-targeting open economy. Which set of circumstances is most likely to cause the central bank to raise its benchmark interest rate?
| Option | Output gap | Exchange rate of the domestic currency |
|---|---|---|
| A | Negative | Appreciating |
| B | Negative | Depreciating |
| C | Positive | Appreciating |
| D | Positive | Depreciating |
Negative output gap and appreciating exchange rate
Negative output gap and depreciating exchange rate
Positive output gap and appreciating exchange rate
Positive output gap and depreciating exchange rate
176 exam-style questions on AQA A Level Economics 2.4 Financial markets and monetary policy (A-level only), covering 2.4.1 The structure of financial markets and financial assets, 2.4.2 Commercial banks and investment banks, 2.4.3 Central banks and monetary policy, and 2.4.4 The regulation of the financial system. Each one has a worked solution and a mark scheme showing where the marks go.