A central bank implements an expansionary monetary policy, consisting of low policy interest rates and quantitative easing, to stimulate aggregate demand and prevent a deflationary spiral. This policy is least likely to achieve its objective of increasing economic activity if, at the same time, the government:
runs a larger budget surplus by cutting public infrastructure investment.
runs a larger budget deficit by increasing transfer payments to low-income households.
reduces the rate of corporation tax to encourage private sector investment.
implements a scheme to guarantee commercial bank loans to small businesses.
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.