After a rise in Bank Rate, a hotel postpones building an extra wing of rooms because borrowing has become more expensive.
Why may this decision help to reduce demand-pull inflation?
Investment spending falls, so total spending grows more slowly than the economy's capacity to supply.
The economy's capacity to supply grows faster, so output can rise to meet total spending.
Households earn more interest on their savings, so they spend more on holidays and hotel stays.
The hotel's running costs fall, so it can afford to cut the prices it charges its guests.
116 exam-style questions on OCR GCSE Economics 3.6 Monetary policy, covering 3.6.1 What is monetary policy, 3.6.2 Monetary policy and macro objectives, and 3.6.3 Effects of monetary policy. Each one has a worked solution and a mark scheme showing where the marks go.