10 questions🇬🇧English
🏦 Monetary Policy – A-level
Economics · A-level — practise the MPC, the inflation target, interest rates, the transmission mechanism and quantitative easing.
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Questions
How many members sit on the Bank of England's Monetary Policy Committee?
Twelve
Nine
Seven
Five
20s
Since 2003, the inflation target set for the Bank of England has been:
2.5% RPIX inflation
3% CPI inflation
2% CPI inflation
1% CPI inflation
20s
In which year was the Bank of England given operational independence to set interest rates?
2008
1992
1979
1997
20s
If CPI inflation moves more than 1 percentage point away from the target, what must the Governor do?
Call a general review of the target
Write an open letter to the Chancellor
Hand rate-setting back to the Treasury
Raise Bank Rate by 1 percentage point
30s
The MPC raises Bank Rate. What is the most likely short-run effect on the pound's exchange rate?
It depreciates as UK exports rise
It appreciates as hot money flows in
It depreciates as hot money flows out
It stays fixed because the MPC pegs it
30s
A cut in Bank Rate is most likely to increase household consumption because:
Income tax on households falls automatically
Import prices fall as the pound appreciates
Saving becomes more rewarding for households
Saving is less rewarding and borrowing is cheaper
30s
Which best describes quantitative easing (QE) as carried out by the Bank of England?
Raising the reserves banks are required to hold
Selling gilts to banks to withdraw money
Printing banknotes to give directly to households
Creating reserves to buy gilts from financial firms
30s
Quantitative tightening (QT) reduces the Bank of England's stock of gilts. How is this achieved?
Selling gilts and not reinvesting maturing ones
Buying more gilts with newly created reserves
Raising Bank Rate above the inflation rate
Lending to commercial banks at a penalty rate
30s
The Bank of England estimates a change in Bank Rate takes roughly how long to have its maximum effect on inflation?
About ten years
Up to about two years
About two weeks
About three months
20s
Why is raising Bank Rate a costly response to cost-push inflation caused by a sharp rise in oil prices?
It increases AD and so adds to inflation
It raises oil prices directly in world markets
It cuts AD, deepening falls in output and jobs
It only works on supply, not on demand
30s