Monetary policy (HL)

Which of the following is not true about monetary policy?

• It is a demand-side policy

• It involves the use of taxation to manage the economy

• The central bank has an important role in managing the policy

• Reducing inflation can be a key objective of the policy

Using the data below, which of the following is the value of credit created?

$80,000 initial deposit

Minimum reserves requirement 16%

• $1,280,000

• $80,000

• $500,000

• $92,800

Which of the following is most likely to lead to a rise in interest rates in an economy?

• Increase in the money supply

• Decrease in the demand for money

• Central bank reduces the base rate

• Increase in the minimum reserve requirement

Which of the following best describes a situation where the central bank sells government bonds to increase market interest rates?

• Quantitative easing

• Open market operations

• Increasing the base rate

• Increase in the minimum reserve requirement

Which of the following is a strength of contractionary monetary policy?

• Consumers might respond slowly to an increase in interest rates

• It can reduce the rate of economic growth

• The policy can be used incrementally

• It is associated with time lags

Which of the following is least likely to be the function of a country's central bank?

• Application of monetary policy

• Accepting deposits from large manufacturing businesses

• Lending to commercial banks

• Setting base interest rates

Which of the following is least likely to be true in the diagram?

• The increase in AD could have been caused by a cut in the base rate

• The increase in AD could be the result of expansionary monetary policy

• The increase in AD could have been caused by an increase in the minimum reserve requirement

• The increase in AD could have been caused by quantitative easing

Under what conditions is expansionary monetary policy most likely to be effective in increasing aggregate demand?

• Weak consumer confidence data has been released

• The exchange rate is depreciating

• Business confidence is falling

• The income tax rate has increased

Which interest rate does the central bank change when it is applying monetary policy?

• The base interest rate

• The real interest rate

• The nominal interest rate

• The market interest rate

Which of the following is the most likely consequence of an increase in a country’s money supply?

• A rise in unemployment

• An appreciation in the exchange rate

• A decrease in economic growth

• Market interest rates decrease