CAIE 23 Monetary Policy

What is the aim of monetary policy?

• to ensure a balanced budget in the long run

• to influence aggregate demand

• to influence aggregate supply

• to reduce price stability

Which of the following is a monetary policy tool?

• investment grants

• maximum price

• money spent on education

• restrictions on bank lending

What effect is an increase in the money supply likely to have?

• A decrease inflation

• B decrease government spending

• C increase consumer expenditure

• D increase unemployment

Which circumstance would reduce the effectiveness of expansionary monetary policy?

• A domestic firms being reluctant to invest

• B foreign firms being reluctant to sell products to domestic consumers

• C households being reluctant to save

• D the government being reluctant to raise taxes

Which problem would be most likely to cause a central bank to increase the money supply?

• A budget surplus

• B cyclical unemployment

• C demand-pull inflation

• D economic boom

What effect is an increase in the rate of interest likely to have on consumer expenditure and investment?

• A

• B

• C

• D

In which circumstance is an expansionary monetary policy most likely to reduce a country’s economic performance?

• A its aggregate demand is low

• B its economic growth rate is negative

• C its inflation rate is below its target rate

• D its unemployment rate is close to zero

What would indicate that a central bank is using a contractionary monetary policy?

• A

• B

• C

• D

Which combination of a fiscal policy tool and a monetary policy tool is a government most likely to use to reduce unemployment?

• A

• B

• C

• D

Which policy tool is a contractionary monetary policy tool?

• A decrease in the exchange rate

• B decrease in the rate of interest

• C a purchase of government bonds by the central bank

• D a restriction on bank lending