An economy is experiencing persistent deflationary pressures and rising unemployment, with the central bank's policy interest rate already close to the zero lower bound. The government has set a symmetric inflation target of 2.0%.
All other things being equal, which one of the following actions is the central bank most likely to take to stimulate economic activity and return inflation to its target?
Selling government debt securities to commercial banks to reduce liquid assets in the financial sector.
Increasing the discount rate to discourage commercial banks from borrowing from the central bank.
Announcing a commitment to keep interest rates low for the foreseeable future alongside continued purchases of asset-backed securities.
Implementing measures to appreciate the nominal exchange rate to lower the cost of imported raw materials.
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.