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

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Question 37

A central bank operating under a symmetric inflation target of 2.0% observes that domestic CPI inflation has risen to 5.8% due to an overheating economy and rapid credit expansion. To restore price stability, which combination of policy actions and monetary outcomes should the central bank pursue?

A

Increase the Bank Rate, purchase financial assets (Quantitative Easing), leading to an expansion of the money supply.

B

Decrease the Bank Rate, sell financial assets (Quantitative Tightening), leading to a contraction of the money supply.

C

Increase the Bank Rate, sell financial assets (Quantitative Tightening), leading to a contraction of the money supply.

D

Decrease the Bank Rate, purchase financial assets (Quantitative Easing), leading to an expansion of the money supply.

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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