Which of the following is the most likely sequence of transmission effects following an increase in the Bank Rate by the Monetary Policy Committee (MPC) of the Bank of England?
Saving rises and investment falls; demand for sterling increases, causing the exchange rate to appreciate; asset prices fall; aggregate demand contracts.
Saving falls and consumption rises; capital outflows increase, causing the exchange rate to depreciate; asset prices rise; aggregate demand expands.
Commercial bank lending expands; domestic bond prices rise, causing yields to fall; hot money flows out; import prices rise.
The central bank sells government bonds to commercial banks; the monetary base expands; interest rates fall; investment increases.
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.