All other things being equal, if a central bank implements a significant increase in its base interest rate (policy rate), which of the following is most likely to occur as a direct result of the monetary transmission mechanism?
An appreciation of the domestic currency's exchange rate and a fall in net exports.
An increase in the market prices of existing fixed-coupon government bonds.
A faster rate of growth of aggregate demand stimulated by positive wealth effects.
A decrease in the cost of borrowing for commercial banks from the central bank.
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.