Monetary policy

Assume the Indian Government increases the rate of interest. What is likely to be the immediate effect on the economy?

Feb/March 2016

What does the term monetary policy measure mean?

Feb/March 2020

A country is experiencing inflation that is rising quickly. State one example of a monetary policy measure that could be used to reduce this problem?

Feb/March 2021

What effect is most likely from an expansionary monetary policy?

Feb/March 2023

An economy is experiencing a high inflation rate. Which monetary policy measure should be used to lower inflation?

Feb/March 2024

Governments may use monetary policy, for example by raising the rate of interest. What is one effect of a higher rate of interest?

Feb/March 2025

When a government reduces the interest rate, who is most likely to be put at a disadvantage by this policy?

May/June 2015

From 2005 to 2012, Peru and Panama recorded the quickest economic growth rates in the Americas. The two countries vary in population size and in the scale of their economies. In 2013, Peru had a population of 30 million and a Gross Domestic Product (GDP) of US$340 billion. By comparison, Panama had a population of 3.6 million and a GDP of US$60 billion. Life expectancy was greater in Panama, with people living, on average, three years longer than in Peru. During 2008 to 2013, Peru had an average annual inflation rate of 2.7%. This was due partly to the careful control of the country's interest rate and exchange rate by Peru's Central Bank. Panama does not have a central bank and recorded a different average annual inflation rate (see Fig. 1). Fig. 1: Panama's inflation rate, 2008-2013. The vertical axis is labelled "inflation rate (%)" and the horizontal axis is labelled "years". The years shown are 2008, 2009, 2010, 2011, 2012 and 2013. From 2008 to 2013, the unemployment rate fell by more in Panama than in Peru. The drop in Panama's unemployment rate was mainly caused by construction work on a seven-year project to widen the Panama Canal. Panama's lower unemployment rate was one reason why poverty was lower there than in Peru in 2013. Peru had a trade in goods surplus whereas Panama had a trade in goods deficit. Both countries export gold and fish and import oil and cars. For each country, the USA, China and Japan are important trading partners. Around 75% of workers in Peru are employed in the service (tertiary) sector compared with 80% in Panama. Key service industries in Panama include insurance and banking. Panama has the largest insurance market in Central America. The number of companies in the market, including multinational companies, is rising, which is making the market more competitive. Multinational companies also operate in the country's banking sector. It has several private sector commercial banks. It does not have a central bank and, therefore, does not have direct government regulation of its banking sector. In recent years the average size of the commercial banks has grown. There is some debate about whether larger banks benefit their customers.

May/June 2015

The Mexican economy has been doing well recently. Its monetary policy has reduced inflation, which has helped money in the country carry out its functions more efficiently. The efficiency of a country’s industries is affected by many factors. These include whether division of labour is used and how much trade protection the country has.

May/June 2015

What does expansionary monetary policy mean?

May/June 2016

In July 2016, Sweden’s central bank, the Sveriges Riksbank, reduced the rate of interest to 0.25%. Sweden was facing deflation, with the weighted price index having fallen by 0.2% compared with the previous year. The lower rate of interest weakened the krona, Sweden’s currency, and was expected to bring deflation to an end.

May/June 2016

What is most likely to occur when the rate of interest rises?

May/June 2017

What would a government cut as part of an expansionary monetary policy in order to raise employment?

May/June 2018

Which statement concerning changes in the interest rate is correct?

May/June 2019

The table lists possible patterns linking the rate of interest with other economic variables. Which pattern is most likely?

May/June 2019

In recent years, some central banks have lowered interest rates to below $1\%$ per year. What is the aim of this monetary policy?

May/June 2019

What is the most likely consequence of a government cutting the money supply?

May/June 2019

In February 2017, China’s central bank increased the interest rate. It aimed to curb borrowing and slow the growth of the money supply, although it was concerned that a higher interest rate could lower the country’s economic growth rate. The rise in interest rates is likely to have added to the workload of skilled workers in commercial banks.

May/June 2019

After the UK decided to leave the European Union (EU) in June 2016, the British currency, the pound (£), lost value. Even so, in August 2016, despite the fall in the £, the Bank of England cut interest rates from 0.5% to 0.25%. This was intended to stimulate more spending and borrowing so that economic growth would not slow further.

May/June 2019

Interest rates are sometimes increased in order to reduce inflation. Why could this policy be effective?

May/June 2021

A government applies expansionary monetary policy. What does the government reduce?

May/June 2021

Australia suffered a drought in 2018, which led to a fall in agricultural output. In 2018, Australia’s secondary and tertiary sectors performed more strongly than its primary sector. The central bank measures used to prevent deflation affected all three sectors. Some firms gained from these measures and increased output.

May/June 2021

Why could a rise in the interest rate possibly result in lower inflation?

May/June 2022

In a country, the rate of interest is raised in order to reduce inflation. What kind of macroeconomic policy is this?

May/June 2022

The central bank of a country increased the interest rate from $1\%$ to $4\%$ per year. How would this change have affected how much individuals saved and the cost of borrowing?

May/June 2023

Government policy measures can influence economic activity in a country. Which pair of monetary policy measures would be most likely to raise employment?

May/June 2023

A government tries to boost economic growth by lowering interest rates. Which other government objective is most likely to benefit in the short run?

May/June 2024

Which statement correctly describes how monetary policy measures affect macroeconomic aims?

May/June 2024

If interest rates decline, what is the most likely impact on saving and borrowing?

May/June 2025

Which variables are often altered as part of monetary policy?

May/June 2025

A country's central bank increased the rate of interest from $1\%$ to $4\%$ per year. How would this alteration have influenced the amount saved and the cost of borrowing for individuals?

May/June 2025

A nation’s central bank increased the rate of interest from $1\%$ to $4\%$ per year. How would this change have influenced the amount saved and the cost of borrowing for individuals?

Oct/Nov 2015

Governments may use monetary policy, for example by raising the rate of interest. What is one effect of a rise in the rate of interest?

Oct/Nov 2015

In 2013, the Japanese Government adopted a range of policies, including monetary policy, to lift consumer spending and investment so as to avoid deflation. At the same time, some Japanese politicians were arguing that the government should raise the rate of the country’s sales tax from 5% to 10%. Sales tax is an indirect and regressive tax.

Oct/Nov 2015

What, if it increases, will help a government bring down the rate of inflation?

Oct/Nov 2017

Which policy is intended to keep inflation low over time?

Oct/Nov 2017

What, if it rises, will enable a government to lower the inflation rate?

Oct/Nov 2017

What, if it rises, will allow a government to cut the inflation rate?

Oct/Nov 2017

What is likely to support a government policy that aims to reduce inflation?

Oct/Nov 2018

Soon after the 2014 Winter Olympic Games in Sochi, Russia, the Russian currency, the rouble, lost value sharply against the US$. At the same time, Russian Gross Domestic Product (GDP) growth rates turned negative. These shifts were helped by political and economic instability in the region. To prevent more financial capital leaving the Russian economy and to limit further weakening of the Russian rouble, the central bank of Russia raised the official interest rate to 17%. By 2016, the rouble had fallen even further, and the central bank was thinking about selling foreign reserves to lift the exchange rate against the US$. On the whole, the Russian economy looked weak in 2016. Export values dropped and overseas investors had little confidence in the Russian economy. This affected unemployment rates and economic growth, and it also influenced poverty rates, which were predicted to rise back to pre-2007 levels. Demographic patterns made matters worse because Russia’s population fell as a result of a high death rate, a low fertility rate, and a high level of emigration. However, domestic consumption and investment did show some encouraging signs. Consumers purchased more domestic goods and domestic investment rose. Even so, inflation increased and the central bank introduced policy measures to stop prices rising quickly. As an oil producer, Russia’s economy was influenced by falling international oil prices. Saudi Arabia, the world’s second largest oil producer, kept raising oil production despite pressure from other producers to cut output. Also, worldwide demand for oil was weak. Table 1 gives the oil price from 2010 to 2016. In 2016, domestic Russian oil producers found it difficult to make a profit because of economic uncertainty and competition from renewable energy. They also worried that making a profit might become even harder in future. This was because the government wanted to raise more revenue by increasing tax on oil producers. The government thought that such an extra tax would not really damage the large oil producers.

Oct/Nov 2018

In 2016, a global peanut shortage pushed up their price. China, which had usually been a net exporter of peanuts, was on the point of becoming a net importer. South Africa, an exporter of premium, high-priced peanuts used in chocolate confectionery, suffered the worst drought on record. In the same year, more South African farmers applied for bank loans.

Oct/Nov 2018

Give one example of expansionary monetary policy.

Oct/Nov 2019

An African government has given up its own dollar and now uses the US dollar as its currency. Why might this policy have been needed?

Oct/Nov 2019

The government applies monetary policy and lowers the interest rate. What could be a result of this?

Oct/Nov 2019

What can a central bank raise to cut consumer borrowing?

Oct/Nov 2020

What can a central bank raise in order to cut consumer borrowing?

Oct/Nov 2020

What can a central bank raise to lower consumer borrowing?

Oct/Nov 2020

In July 2018, Uruguay’s inflation rate stood at 8.4%. The central bank was considering raising the interest rate to bring inflation down. A higher interest rate may affect aggregate demand in an economy and cause the currency to appreciate. That could affect Uruguay’s exports, especially soybean exports. Uruguay’s soybean firms’ total revenue could change if the Uruguayan peso appreciates.

Oct/Nov 2021

Which alteration is an example of monetary policy?

Oct/Nov 2022

What is the most probable effect of a rise in the rate of interest?

Oct/Nov 2022

A country’s central bank lowers interest rates in order to support the economy during a recession. How is this cut in interest rates most likely to change the amounts saved and borrowed from the country’s commercial banks?

Oct/Nov 2022

A central bank lowers interest rates. Which outcome would not follow from this action?

Oct/Nov 2022

The government applies monetary policy and lowers the interest rate. What could be a result of this?

Oct/Nov 2023

What is likely to occur when the rate of interest rises?

Oct/Nov 2023

During 2008-2009, the central bank of a developed country cut interest rates from $5\%$ to $0.5\%$ per year in order to stimulate the economy. What effect would this policy have had on the level of saving and on individuals’ borrowing costs?

Oct/Nov 2023

The government cuts the rate of interest. Who is most likely to lose out from this policy?

Oct/Nov 2023

What is a possible example of monetary policy?

Oct/Nov 2024

In 2021, Turkey’s central bank reduced the interest rate on four separate occasions. This happened even though inflation climbed from 15% at the beginning of the year to 36% by year end. Turkish commercial banks gained more customers, causing bank deposits to rise by 10%. Later in that year, the Turkish lira dropped to a record low against the US dollar.

Oct/Nov 2024

Which of the following is not a monetary policy measure?

Oct/Nov 2025

What is the most probable effect of a decrease in interest rates?

Oct/Nov 2025