Which one of the following is a correct statement about the operation and effects of monetary policy?
Expansionary monetary policy is primarily designed to resolve cost-push inflation.
Quantitative easing involves the central bank selling government bonds to commercial banks to decrease broad money supply.
Lower interest rates can encourage economic growth by reducing the cost of borrowing, but they can also lead to an increase in the rate of inflation.
If the government adopts an expansionary fiscal stance, the central bank is legally required to increase policy interest rates to maintain a balanced budget.
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.