Which of the following statements correctly describes a transmission channel or outcome of a central bank raising its policy interest rate to curb demand-pull inflation?
The exchange rate channel causes a depreciation of the domestic currency, which makes exports cheaper and increases net exports.
The asset price channel leads to a fall in equity and property values, which reduces household wealth and discourages consumer spending via a negative wealth effect.
The credit channel encourages commercial banks to lower their lending criteria and expand credit supply to offset the reduction in household discretionary income.
The expectations channel guarantees an immediate adjustment in wage- and price-setting behaviour, ensuring that inflation drops to the target level within one quarter.
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.