A central bank decides to implement a tightening (contractionary) monetary policy stance to curb inflationary pressures in the domestic economy. Which of the following combinations of policy actions represents a purely monetary policy response that achieves this objective?
An increase in the main policy interest rate combined with an increase in the top rate of personal income tax
A sale of government bonds in the open market combined with an increase in the commercial bank cash reserve ratio
A purchase of government bonds in the open market combined with an increase in the main policy interest rate
An increase in the main policy interest rate combined with a reduction in public sector spending on infrastructure projects
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.