Practise applying interest rates, money supply and credit regulation to inflation or recession through AD/AS, then evaluating transmission, timing and alternative policy choices.
A central bank is asked by the government to help achieve price stability.
If inflation rises steeply, which policy will not be directly within the control of the central bank?
increasing the rate of interest to reduce consumer spending
managing a reduction of the money supply
using credit restrictions to regulate lending by commercial banks to households
restricting wage increases in the private and public sectors
What is the effect of an increase in the money supply on the interest rate and the aggregate demand (AD) curve?
interest rate
AD curve
falls
shifts left
rises
shifts left
falls
shifts right
rises
shifts right
An increase in interest rates is an example of which type of policy?
contractionary fiscal policy
contractionary monetary policy
expansionary monetary policy
restrictive supply-side policy
