This SL quiz checks your understanding of monetary policy and how it can help achieve macroeconomic objectives (e.g., low and stable inflation and low unemployment). Answer in clear IBDP exam style.
Define monetary policy.
Define an expansionary (loose) monetary policy.
Define inflation (as a macroeconomic objective).
An economy has demand-pull inflation above the target rate. Which monetary policy action is most appropriate?
Which two outcomes are most likely in the short run when a central bank raises the policy interest rate? (Select two.)
Expansionary monetary policy is likely to reduce unemployment in the short run, if unemployment is caused by a lack of aggregate demand.
Draw a fully labeled AD–AS diagram to show an economy initially at equilibrium, then illustrate the effect of expansionary monetary policy on real GDP and the price level in the short run.
Which is the best reason monetary policy may be less effective at increasing real GDP during a deep recession?
In an economy experiencing demand-pull inflation (inflation is above the central bank’s target), which monetary policy action is most appropriate?
Which of the following are macroeconomic objectives that monetary policy may aim to achieve at SL? (Select two.)
An increase in the policy interest rate is expected to reduce the quantity of loans demanded and decrease aggregate demand (AD).
Country X has rising unemployment due to a fall in aggregate demand. Which monetary policy stance is most likely to help achieve the macroeconomic objective of full employment?
Which statement best describes the transmission mechanism of monetary policy?
Define monetary policy.
Define expansionary monetary policy.
Diagram: Using an AD/AS diagram, show the effect of contractionary monetary policy on an economy initially experiencing demand-pull inflation.
Diagram: Using an AD/AS diagram, show the effect of expansionary monetary policy on an economy initially in a recessionary gap.