To stimulate economic activity during a deep recession, a central bank's regulatory body decides to ease macroprudential policy. The objective is to encourage commercial banks to expand credit creation and increase lending to the private sector, accepting that this will reduce the banking system's immediate safety margins against sudden shocks.
Which combination of policy adjustments to the minimum liquidity ratio and the capital adequacy ratio is most likely to achieve this objective?
| Option | Minimum Liquidity Ratio | Capital Adequacy Ratio |
|---|---|---|
| A | Decrease | Decrease |
| B | Increase | Increase |
| C | Decrease | Increase |
| D | Increase | Decrease |
Decrease the minimum liquidity ratio, Decrease the capital adequacy ratio
Increase the minimum liquidity ratio, Increase the capital adequacy ratio
Decrease the minimum liquidity ratio, Increase the capital adequacy ratio
Increase the minimum liquidity ratio, Decrease the capital adequacy ratio
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.