Economics Multiple Choice Question – 23 April 2019

The table below shows the rate of interest in four countries in 2017 and 2018.

Which of the following would best explain the possible aims of the changes in monetary policy that occurred between 2017 and 2018?

Select ONE answer:

1. Country A was trying to discourage consumer spending / Country B was trying to encourage domestic saving
2. Country B was trying to encourage consumer spending / Country C was trying to encourage investment by firms
3. Country C was trying to encourage consumer spending / Country D was trying to discourage domestic saving
4. Country C was trying to discourage short term capital inflows / Country D was trying to encourage more exports

Show your workings to arrive at your answer, and explain and justify your reasons:……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple choice question is suitable for Economics KS5 classes.

The answer is 2

1. Although an increase in the interest rate should discourage consumer spending in Country A, a decrease in the interest rate in Country B should reduce the incentive to save.
2. Correct: A reduction in the interest rate in Country B should lead to increased consumer spending and a reduction in the interest rate should also be an incentive for firms to borrow and invest in their businesses.
3. Although a reduction in the interest rate should lead to an increase in consumer spending in Country C, the increase in interest rate in Country D should encourage more foreigners to save in that country.
4. Although Country C may have reduced their interest rate to make saving in their country less attractive for foreigners, an increase in the interest rate in Country D should actually lead to more demand for their currency, making their exports less competitive abroad.

 

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