In the UK financial system, the Financial Policy Committee (FPC) of the Bank of England has the authority to implement measures such as imposing a limit on the proportion of new mortgage lending at high loan-to-income (LTI) ratios.
Which of the following correctly identifies the classification of this regulatory action and its primary objective?
It is a macroprudential policy aimed at reducing systemic risk by preventing the build-up of aggregate household debt and protecting the wider financial system from collapse.
It is a microprudential policy aimed at safeguarding individual financial institutions from insolvency by ensuring each bank maintains sufficient liquid assets to meet short-term withdrawals.
It is a conduct-of-business policy aimed at reducing asymmetric information and preventing predatory lending practices by mortgage providers against vulnerable borrowers.
It is a monetary policy action aimed at controlling inflation by directly manipulating the base interest rate and reducing the aggregate supply of credit.
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.