revision questions chapter 30 pt1

Question 1

Suppose the demand for money increases. If the Bank of England is targeting the quantity of money, the Bank of England must ________ the supply of money and if it is targeting the interest rate, the Bank of England must ________ the supply of money.

Answer 1

decrease, increase

Question 2

if the bank of England lowers the interest rate, then

Answer 2

a multiplier process that effects aggregate demand occurs

Question 3

If the real interest rate is 3 per cent and the inflation rate is 2 per cent, the nominal interest rate is approximately

Answer 3

nominal interest rate= interest rate + inflation rate
3% + 2%= 5%

Question 4

when the real interest rate falls…

Answer 4

investment expenditure increases

Question 5

If the UK interest rate rises, the pound exchange rate ________ and net exports ________.

Answer 5

rises, decreases

Question 6

If the Bank of England increases the supply of money so that the pound exchange rate falls, then imports ________ and exports ________.

Answer 6

decrease; increase

Question 7

As a “central bank,” which of the following is true regarding the Bank of England?

Answer 7

I. The Bank of England is the lender of last resort to the banking system.
II. The Bank of England is the government’s bank.

Question 8

The most frequently used policy tool of the Bank of England is the

Answer 8

buying and selling of government securities.

Question 9

Which of the following is NOT a function of a central bank?

Answer 9

Operating as a borrower of first resort.

Question 10

SPICED WPIDEC

Answer 10

Strong
Pound
Imports
Cheaper
Exports
Dearer

Weak
Pound
Imports
Dearer
Exports
Cheaper