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Quiz - Worksheets - Cures - Inflation - Monetary Policy - Economics bank - Virtual Bank of Biz/ed

Monetary Policy - Inflation - Cures

Quiz - Inflation - how can we fix it?

1. Identify each of the following statements as either true or false.

  • Increased interest rates will give savers a better return and overall are likely to create a higher level of consumption in the economy.
    (Select one answer)

(a) * True
(b) * False

       
  • A cut in tax rates will encourage people to work harder and shift the aggregate supply curve to the left.
    (Select one answer)

(a) * True
(b) * False

       
  • Increased investment by firms will increase aggregate demand in the short-run and aggregate supply in the long-run.
    (Select one answer)

(a) * True
(b) * False

       
  • An increase in the rate of interest is likely to attract investment into the UK and lead to an appreciation of the exchange rate.
    (Select one answer)

(a) * True
(b) * False

       
  • A decrease in the level of government expenditure will help reduce inflation, but may adversely affect the potential level of output.
    (Select one answer)

(a) * True
(b) * False

       
2. Which of the following policies would be most effective at reducing the level of demand in the economy?
(Select one answer)

(a) * allowing the exchange rate to depreciate
(b) * increasing tax-free allowances for income tax
(c) * reducing trade union power to prevent wages rising as fast
(d) * increasing income tax rates

       
3. Which of the following policies would be most effective at increasing the productive potential of the economy?
(Select one answer)

(a) * increasing interest rates to increase saving
(b) * reducing income tax rates
(c) * increased government expenditure
(d) * allowing the exchange rate to appreciate

       
4. What is the current inflation target?
(Select one answer)

(a) * 1.5%
(b) * 2%
(c) * 2.5%
(d) * 3%

       
5. For each of the policies / events given below, select either AS1 or AS2 on the diagram to show how aggregate supply is likely to change as a result. Start each time from the original AS curve.
Changes in Aggregate Supply
  • The introduction of literacy and numeracy hours in schools to improve educational standards.
    (Select one answer)

(a) * AS1
(b) * AS2

       
  • Imposing a training levy on firms to encourage more spending on training.
    (Select one answer)

(a) * AS1
(b) * AS2

       
  • Increasing income tax levels.
    (Select one answer)

(a) * AS1
(b) * AS2

       
  • The introduction of further, more detailed employment legislation.
    (Select one answer)

(a) * AS1
(b) * AS2

       
  • Various mergers between trade unions create more monopoly power among trade unions.
    (Select one answer)

(a) * AS1
(b) * AS2

       
6. For each of the policies / events given below, select either AD1 or AD2 on the diagram to show how aggregate demand is likely to change as a result. Start each time from the original AD curve.
Changes in Aggregate Demand
  • A depreciation of the exchange rate.
    (Select one answer)

(a) * AD1
(b) * AD2

       
  • Increased capital allowances for investment.
    (Select one answer)

(a) * AD1
(b) * AD2

       
  • A reduction in VAT.
    (Select one answer)

(a) * AD1
(b) * AD2

       
  • A reduction in defence spending arising from the end of the 'Cold War'.
    (Select one answer)

(a) * AD1
(b) * AD2

       
  • A reduction in the National Debt reduces debt interest repayments.
    (Select one answer)

(a) * AD1
(b) * AD2

       
  • An increase in the level of interest rates set by the Monetary Policy Committee.
    (Select one answer)

(a) * AD1
(b) * AD2

       
  • An increase in expected inflation.
    (Select one answer)

(a) * AD1
(b) * AD2

       
7. Which of the following types of monetary policy are currently used by the Bank of England to support their fight against inflation?
(Select one or more answers)

(a) * Credit controls
(b) * Changing reserve requirements
(c) * Interest rate changes
(d) * Open market 'repo' operations
(e) * Monetary Base Control

       
8. Which of the following are included in the measurement of the monetary base?
(Select one or more answers)

(a) * Banks balances at the Bank of England
(b) * Current account deposits
(c) * Notes and coins
(d) * Deposit account deposits
(e) * Building society deposits

       
9. The graph below shows a trade cycle - a cyclical pattern of economic growth. Select the point(s) that you feel best fits with the description given in each question.
Trade cycle
  • A point where you would be expecting the Monetary Policy Committee to be increasing the rate of interest.
    (Select one answer)

(a) * Point 1
(b) * Point 2
(c) * Point 3
(d) * Point 4
(e) * Point 5

   
  • Points where you would be expecting the Monetary Policy Committee to be reducing the rate of interest.
    (Select one or more answers)

(a) * Point 1
(b) * Point 2
(c) * Point 3
(d) * Point 4
(e) * Point 5

       
  • A point where supply-side constraints are likely to be forcing prices up.
    (Select one answer)

(a) * Point 1
(b) * Point 2
(c) * Point 3
(d) * Point 4
(e) * Point 5

   
  • Points where you would expect a high level of cyclical unemployment.
    (Select one or more answers)

(a) * Point 1
(b) * Point 2
(c) * Point 3
(d) * Point 4
(e) * Point 5

       
10. What year was the Monetary Policy Committee of the Bank formed to set the level of interest rates in the economy?
(Select one answer)

(a) * 1996
(b) * 1997
(c) * 1998
(d) * 1999

       
11. Tight monetary policy to reduce inflation requires a higher level of interest rates. Which of the following is likely to occur from this?

  • Increased investment
    (Select one answer)

(a) * Yes
(b) * No

   
  • Reduced costs for firms
    (Select one answer)

(a) * Yes
(b) * No

   
  • Increased government expenditure
    (Select one answer)

(a) * Yes
(b) * No

   
  • An improved competitive position overseas
    (Select one answer)

(a) * Yes
(b) * No

   
  • Slower growth in potential output
    (Select one answer)

(a) * Yes
(b) * No