Inflation has risen sharply above the target rate in Canada. In response, the Bank of Canada has increased its policy interest rate. Simultaneously, the federal government has announced a reduction in public spending while maintaining current tax rates to reduce the budget deficit.
It can be inferred from this scenario that, in response to rising inflation,
both monetary policy and fiscal policy are contractionary.
monetary policy is contractionary whilst fiscal policy is expansionary.
monetary policy is expansionary whilst fiscal policy is contractionary.
both monetary policy and fiscal policy are expansionary.
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.