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CAIE A-Level Economics A2 9.4.5 Money Supply Changes Questions

Trace how central bank asset purchases and commercial bank lending change the money supply using QE diagrams and cash–deposit ratio calculations.

Syllabus
2026–2028
Course
Economics 9708
Level
A2

Exam points

  • interpret QE diagrams showing bond purchases, money supply increases and lower interest rates
  • explain how reserve or liquidity ratio changes alter commercial bank credit creation
  • Identify commercial bank lending as the activity that creates deposit money.
  • Calculate deposit capacity from cash reserves and the required cash–deposit ratio.
  • Identify total currency flow as money flowing between domestic residents and foreign residents.
  • Compare money-supply control under floating exchange rates, a currency peg and a monetary union.

CAIE A-Level Economics A2 9.4.5 Money Supply Changes Questions question 1

[Maximum number: 1]

A political party proposed a policy of quantitative easing (the creation of money by the central bank).
When would such a policy be least likely to destabilise the macroeconomy in the short run?

A

when the economy was experiencing a high level of inflation

B

when the economy had price stability but there was full employment of the labour force

C

when there was a deep recession with high levels of unemployment

D

when there was full employment and a current account balance of payments deficit

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