Source: http://www.tutor2u.net/economics/quizzes/as/monetarypolicy1/quiz.

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Answers
1.

Which one of the following statements regarding monetary policy is correct?

a) A fall in interest rates always causes increasing inflation
b) A fall in interest rate may cause a rise in cost-push inflation
c) Changes in interest rates have no effect on aggregate supply
d) A rise in interest rates will lead to a rise in business investment

2. Which of the following is regarded as an instrument of monetary policy?

a) Investment
b) Exchange rates
c) Taxation
d) Government spending
3. Which of these monetary policies is most likely to lead to an expansion of the
economy?
a) An expansion of quantitative easing
b) An appreciation in the exchange rate
c) A rise in interest rate
d) A decrease in the inflation target
4. If the Central Bank lowers interest rates this is most likely to:
a) Shift aggregate demand to the left
b) Shift aggregate demand to the right
c) Shift long run aggregate supply to the left
d) Shift short run aggregate supply to the left
5. Expansionary monetary policy is most effective when
a) The economy is in liquidity trap
b) The economy has a positive output gap
c) The economy is close to full capacity
d) The economy has spare capacity
6. A large rise in interest rates is most likely to lead to an increase in
a) Real national output
b) Business investment
c) Household borrowing
d) Unemployment
7. Which of the following businesses is MOST likely to be adversely affected by
an increase in interest rates?
a) Supermarket
b) Electricity and Gas Supplier
c) House Builder
d) Water supplier