Practice Questions
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In the context of a liquidity trap, how might the implementation of quantitative easing (QE) influence the exchange rate and subsequently affect a country's trade balance?
When a central bank does QE, it buys government bonds and puts more cash into the economy. Other options are incorrect because Many think QE strengthe...
How might an expansionary monetary policy aimed at stimulating employment affect inflation rates when the central bank is also practicing inflation targeting?
An expansionary policy lowers interest rates, so borrowing becomes cheaper. Other options are incorrect because The belief that money automatically ma...
How does the presence of a liquidity trap affect the effectiveness of expansionary monetary policy in reducing unemployment during an economic recession?
When interest rates are already very low and people keep saving instead of spending, cutting rates further does not change much. Other options are inc...
When a central bank adopts inflation targeting, what is the primary goal of this monetary policy approach?
Inflation targeting is about keeping prices steady. Other options are incorrect because The misconception is that the aim is only to raise jobs; This ...
How does an expansionary monetary policy typically influence employment levels during an economic recession?
Lowering interest rates makes loans cheaper. Other options are incorrect because Some think lower rates always cause big inflation that hurts jobs; Ma...
What is the correct sequence of effects resulting from an expansionary monetary policy implemented by a central bank?
Lower interest rates make borrowing cheaper, so businesses spend more on equipment and hiring. Other options are incorrect because This option flips t...
Expansionary monetary policy is to aggregate demand as a gardener is to which of the following?
Expansionary policy lowers interest rates, like a gardener adding nutrients, so more money flows in, businesses spend more, and the economy grows. Oth...
If a central bank implements an expansionary monetary policy by lowering interest rates, what is likely to happen to unemployment in the short run?
Lowering rates makes loans cheaper, so companies borrow more and spend on new projects. Other options are incorrect because It is a common mistake to ...
Classify the following scenarios based on their likely outcomes of an expansionary monetary policy: A. Increased consumer spending, B. Higher inflation rates, C. Decreased unemployment, D. Increased savings rates.
Expansionary monetary policy lowers the official interest rate. Other options are incorrect because Some think inflation is the main goal; Misconcepti...
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