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2.4 Financial markets and monetary policy (A-level only)

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Question 21

A central bank operates under an inflation-targeting framework, aiming for a stable annual inflation rate of 2.5%. The bank's research department estimates that long-run real output growth is constant at 3.0% per annum, while the velocity of circulation of money is decreasing by 1.5% per annum.

Using the percentage change approximation of the Fisher equation of exchange (MV=PQMV = PQMV=PQ), which growth rate of the money supply must the central bank target to achieve its inflation objective?

A

1.0%1.0\%1.0%

B

4.0%4.0\%4.0%

C

7.0%7.0\%7.0%

D

2.0%2.0\%2.0%

Markscheme

2.4 Financial markets and monetary policy (A-level only) Questions

  1. A Level
  2. /Economics
  3. /2.4 Financial markets and monetary policy (A-level only)

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.

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