The central bank of a major economy decreases its main policy interest rate to combat falling inflation and encourage economic growth. All other things being equal, which one of the following is most likely to result from this policy change?
Consumption will decrease since lower borrowing costs discourage credit-financed spending.
Investment will increase as the cost of borrowing for capital projects falls.
Savings will increase as households look to secure higher returns.
The exchange rate will appreciate as a result of capital outflows.
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.