Economics 9708 · AS & A Level
Monetary policy
100 practice questions on Monetary policy, with worked solutions and instant marking.
During March 2014, Sweden recorded a change of –0.6% in its Consumer Price Index. Which mix of policies could the government adopt to bring back price stability?
Feb/March 2016
Outline the components of aggregate demand and explain one cause of an increase and one cause of a decrease in aggregate demand in an economy.
Feb/March 2016
A country's central bank produces cash in order to buy government bonds from commercial banks. What is this known as?
Feb/March 2016
Assess the ways in which changes in interest rates may influence investment.
Feb/March 2016
A government is aiming to apply a more restrictive monetary policy. What would it raise?
Feb/March 2017
The information is about supply-side policies. Explain, with two examples, what is meant by supply-side policies.
Feb/March 2017
Which type of policy would have the most immediate impact in addressing a deflationary economic downturn?
Feb/March 2018
Which action could be included in an expansionary economic policy?
Feb/March 2019
A country’s central bank prints money in order to buy government bonds from commercial banks. What is this process known as?
Feb/March 2019
Which policy is most likely to raise unemployment?
Feb/March 2019
What does the term ‘quantitative easing’ mean?
Feb/March 2019
Distinguish between leakages and injections in the circular flow of income, and explore how they may be connected.
Feb/March 2019
Explain using aggregate demand and aggregate supply diagrams the difference between cost-push inflation and demand-pull inflation and explain one cause of each.
Feb/March 2020
Which diagram illustrates the effect of a quantitative easing policy on the rate of interest?
Feb/March 2020
Identify from the article one example, other than expansionary monetary policy, of a macroeconomic policy tool that a government could use and analyse how it might affect the economy.
Feb/March 2020
‘Monetarists maintain that controlling the money supply is the main way to tackle inflation, whereas Keynesians contend that inflation can only be curbed by controlling expenditure.’ To what extent do you agree that both of these approaches are only partly correct?
Feb/March 2020
The table presents the consumer prices index (CPI) for an economy as index numbers (2016 100; 2017 103; 2018 101; 2019 97). Which action is the government most likely to take in order to achieve price stability?
Feb/March 2021
Calculate the rate of inflation in Japan from 2014 to the estimate in 2019.
Feb/March 2021
Which combination of policies will cut national income by the largest amount?
Feb/March 2021
Which combination agrees with liquidity preference theory?
Feb/March 2021
An economy has a natural rate of unemployment of 5%. What will occur if a government continues attempting to reach a 3% target rate of unemployment through expansionary monetary policy?
Feb/March 2021
An increase in which variable signals a contractionary monetary policy?
Feb/March 2022
Which government monetary policies would be the most effective during a global recession?
Feb/March 2022
Using Fig 1.1, describe how Turkey’s current account balance changed between August 2019 and April 2020.
Feb/March 2022
Using Fig. 1.1, compare the US inflation rate from July to December 2020 with that from January to June 2021.
Feb/March 2023
Which policy is likely to lead to higher unemployment?
Feb/March 2023
Which policy is most likely to be the most effective in reducing inflation that results from a sharp increase in import prices?
Feb/March 2024
The government raises interest rates to lower the inflation rate. What else will this action cause?
Feb/March 2024
A country’s central bank chooses to lower the extent of credit regulation. What is this an example of?
Feb/March 2025
Using a diagram, assess the effectiveness of government policies that could be used to reduce demand-pull inflation.
Feb/March 2025
Explain how changes in interest rates might influence investment.
May/June 2006
For what purposes do people demand money in an economy?
May/June 2008
Explain what factors may result in unemployment.
May/June 2009
What is one main claim of monetarist economics?
May/June 2010
An economy is functioning at its natural rate of unemployment. In monetarist theory, what effect would an unexpected rise in the money supply have on unemployment in the short run and in the long run?
May/June 2010
What is the main claim made by monetarist economics?
May/June 2010
An economy is functioning at its natural rate of unemployment. In monetarist theory, what impact will an unexpected rise in the money supply have on unemployment in the short run and in the long run?
May/June 2010
What is a core claim of monetarist economics?
May/June 2010
An economy is currently at its natural rate of unemployment. In monetarist theory, what effect will an unanticipated rise in the money supply have on unemployment in the short run and in the long run?
May/June 2010
Name two components of aggregate demand that are not referred to in the first paragraph of the extract.
May/June 2010
An economy is functioning at its natural rate of unemployment. In monetarist theory, what effect will an unanticipated rise in the money supply have on unemployment in the short run and in the long run?
May/June 2011
What factor will cause the money supply to increase in an open economy?
May/June 2011
An economy is working at its natural rate of unemployment. In line with monetarist theory, what effect will an unexpected rise in the money supply have on unemployment in the short run and in the long run?
May/June 2011
Which action would raise the money supply in an open economy?
May/June 2011
An economy is functioning at its natural rate of unemployment. In monetarist theory, what impact will an unexpected rise in the money supply have on unemployment in the short run and in the long run?
May/June 2011
Which factor will increase the money supply in an open economy?
May/June 2011
Explain the meaning of a recession.
May/June 2011
Explain what GDP means.
May/June 2011
An increase in investment will raise national income, whereas a rise in consumers' desire to save will lower national income. Explain why this occurs.
May/June 2011
Explain what GDP means.
May/June 2011
A rise in investment will increase national income, whereas a rise in consumers' wish to save will lower national income. Explain why this happens.
May/June 2011
Prior to 1999, the Brazilian government had no preferred target inflation rate. From 1999 onwards, it introduced target rates with both an upper and a lower limit. The diagram illustrates the inflation rate from 1994 to 2003 and the target rate from 1999 to 2003. What conclusion can be drawn from the diagram?
May/June 2012
Prior to 1999, the Brazilian government did not set a desired inflation target rate. Starting in 1999, it established target rates with an upper limit and a lower limit. The diagram illustrates the inflation rate from 1994 to 2003 and the target rate from 1999 to 2003. What can be concluded from the diagram?
May/June 2012
Explain the likely impact of the depreciation of the New Turkish Lira on Turkey’s rate of inflation.
May/June 2012
According to monetarist theory, what short-run effect results from an unexpected rise in the money supply?
May/June 2012
According to monetarist theory, what would be the short-run impact of an unexpected rise in the money supply?
May/June 2012
Which government policy would be suitable for cutting both a current account surplus in the balance of payments and the inflation rate?
May/June 2012
Because of a cyclical slump, a government has a budget deficit. If it wants to boost aggregate demand, which policy would be the most effective?
May/June 2012
Which statement would agree with a monetarist view of how the macroeconomy functions?
May/June 2012
If all other factors remain unchanged, what is likely to happen when interest rates in a country are reduced?
May/June 2012
In 2010 it was noted that worries arose when a government left interest rates very low even though inflation was a threat. Why may the government’s policy have been a cause for concern at that time?
May/June 2013
Which policy, introduced by a government with the aim of lowering the inflation rate, could result in a larger deficit on the balance of payments?
May/June 2013
What will happen if interest rates rise?
May/June 2013
How is a country’s central bank’s policy of quantitative easing (open market purchase of securities) intended to influence the quantity of narrow money and the quantity of broad money?
May/June 2013
According to monetarist theory, what short-run effect will an unanticipated rise in the money supply have on output and on the price level?
May/June 2013
The diagram illustrates how the rate of interest is determined in an economy in which MS stands for the money supply and LP stands for liquidity preference. The rate of interest increases because the liquidity preference curve moves from LP1 to LP2. Which policy could be adopted in an attempt to keep the rate at r1?
May/June 2013
Assuming all other factors remain unchanged, what is likely to happen if interest rates in a country rise?
May/June 2013
What outcome will follow an increase in interest rates?
May/June 2013
Under what circumstance will a rise in the public sector deficit not result in a rise in the money supply, with all other factors unchanged?
May/June 2013
An economy records a balance of payments trade surplus and a high rate of inflation. Which action would be suitable for a government to take?
May/June 2013
The pairing of rapid economic growth and inflation is no coincidence. (Source: The Times) Explain why rapid growth and high inflation might often occur at the same time.
May/June 2013
Explain how a fall in interest rates may affect the level of investment and, as a consequence, national income.
May/June 2013
Which mix of fiscal policy and monetary policy could be used to lower both unemployment and the government budget deficit in an economy?
May/June 2014
A central bank raises interest rates to reduce inflation. What is likely to rise as a result of this?
May/June 2014
Which mix of fiscal policy and monetary policy could be used to lower both unemployment and the government budget deficit in an economy?
May/June 2014
A country uses a fixed exchange rate. Which set of circumstances would make it most likely that the government would cut taxes and lower interest rates?
May/June 2014
During a recession, some people may worry that their jobs are not secure. Explain how, according to liquidity preference theory, this could change their demand for money.
May/June 2014
In a recession, some individuals may think that their jobs are less secure than before. Explain how this could influence their demand for money, according to liquidity preference theory.
May/June 2014
A government uses monetary policy to control its economy. Which sequence most accurately shows the likely result of a rise in the nation’s inflation rate?
May/June 2015
The diagram compares an economy’s actual output with its expected output. What would assist in reducing the gap between actual output and expected output?
May/June 2015
Why would an inflationary process come to an end if the money supply were kept constant?
May/June 2015
The diagram illustrates how the rate of interest is determined in the economy, with M standing for the money supply and LP standing for liquidity preference. What might lead to the increase in the rate of interest from r1 to r2?
May/June 2015
According to Keynesian theory, assuming the liquidity trap does not apply, and according to monetarist theory, assuming the increase is unanticipated, what is the short-run effect on the level of output of an increase in the money supply?
May/June 2015
Briefly explain how monetary policy, fiscal policy and supply-side policy differ, and state whether their effects overlap.
May/June 2015
A country is dealing with two issues at once: deflation and a current account deficit in the balance of payments. It chooses to create a budget deficit and reduce interest rates. What effects are these policies likely to have on the two problems?
May/June 2016
A rise in interest rates is an example of which category of policy?
May/June 2016
Which policy, if taken up by a government to lower the inflation rate, could lead to a larger deficit on the balance of payments?
May/June 2016
Using examples, explain the instruments of monetary policy and supply-side policy.
May/June 2016
Which is most likely to rise if interest rates increase in a country?
May/June 2016
Under Keynesian theory, at what point will an increase in the money supply leave output unchanged?
May/June 2016
During recent years, an economy has seen its price level change as illustrated. Which government policy would be the most effective in reversing the trend in the price level shown?
May/June 2017
State one example of an expenditure-dampening policy.
May/June 2017
The economy is presently functioning at a level of national income close to full employment. Which mix of macro-economic policies would be most likely to produce net deflationary effects?
May/June 2017
Explain how fiscal policy differs from monetary policy. Show how each can be used to raise aggregate demand.
May/June 2017
Explain how the functions of money are changed when an economy experiences a high rate of inflation.
May/June 2017
If higher government spending is funded by borrowing from the central bank, and all other things remain unchanged, what effect will this have on the money supply?
May/June 2017
In June 2015, manufacturing output in China dropped to its lowest level for 15 months. The government wanted to stimulate the economy. Which action would be most likely to help the economy recover?
May/June 2017
In 2015, one political party suggested a policy of quantitative easing (the creation of money by the central bank). In what circumstances would this policy be least likely to destabilise the macro economy in the short run?
May/June 2017
Explain the reasons why people demand money under the liquidity preference theory. Consider which reason is the most important.
May/June 2017
Explain what is meant by ‘the extra money was depressing the value of the US dollar on the exchange markets’.
May/June 2017