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Evaluation of monetary policy

Syllabus: Evaluate the effectiveness of monetary policy through consideration of factors including:
  • the independence of the central bank,
  • the ability to adjust interest rates incrementally,
  • the ability to implement changes in interest rates relatively quickly,
  • time lags,
  • limited effectiveness in increasing aggregate demand if the economy is in deep recession and conflict among government economic objectives.

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Essay Question

May 2014

3. (a) Explain how the aggregate demand curve can be shifted by a reduction in interest rates. [10 marks]

    (b) Evaluate the effectiveness of monetary policy to increase aggregate demand during a recession. [15 marks]

May 2010 TZ1

2. (a) Explain why a country may wish to reduce its rate of inflation. [10 marks]

    (b) Evaluate the likely impact on the economy of relying on higher interest rates to reduce the rate of inflation.
    [15 marks]