IB Economics SL 3.5.5 Expansionary & contractionary monetary policy
IB Economics SL 3.5.5 Expansionary & contractionary monetary policy
Students practise explaining monetary policy transmission via AD/AS diagrams and linking interest rate changes to circular flow and macro outcomes.
How this is tested
- use an AD/AS diagram to show AD shifting left, lowering inflation and real GDP
- explain how higher interest rates reduce consumption and investment, decreasing injections and shrinking
- recommend expansionary monetary policy to raise inflation toward target, referencing Japan’s 0.8% reserve