The Monetary Policy Committee of a central bank is assessing whether to reduce its main policy interest rate to stimulate economic activity and prevent a deflationary spiral.
Which one of the following combinations of economic indicators, A, B, C or D, suggests that the central bank is most likely to lower its policy interest rate?
| Output gap | Core inflation rate | Growth of commercial bank credit | |
|---|---|---|---|
| A | Positive | Below target | Slowing |
| B | Negative | Above target | Accelerating |
| C | Negative | Below target | Slowing |
| D | Positive | Above target | Accelerating |
Output gap: Positive, Core inflation rate: Below target, Growth of bank credit: Slowing
Output gap: Negative, Core inflation rate: Above target, Growth of bank credit: Accelerating
Output gap: Negative, Core inflation rate: Below target, Growth of bank credit: Slowing
Output gap: Positive, Core inflation rate: Above target, Growth of bank credit: Accelerating
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.