Monetary Policy (Cambridge (CIE) IGCSE Economics)

There was a significant increase in the money supply in Angola in 2019. The National Bank of Angola was concerned that this would keep inflation above 17% and harm Angola’s producers. The Angolan government had concentrated on reducing unemployment, which had fallen from 10% in 2010 to 7% in 2019

Explain how quantitative easing works

After the UK’s decision to leave the European Union (EU) in June 2016, the value of the British currency, the pound (£), depreciated. However, in August 2016, despite the fall in the value of the £, the Bank of England reduced interest rates from 0.5% to 0.25%. This was to encourage further spending and borrowing to avoid a lower economic growth rate

Explain two effects on the economy of an increase in interest rates

There was a significant increase in the money supply in Angola in 2019. The National Bank of Angola was concerned that this would keep inflation above 17% and harm Angola’s producers. The Angolan government had concentrated on reducing unemployment, which had fallen from 10% in 2010 to 7% in 2019.

Explain how two instruments of monetary policy work

Angola is an African country without a stock exchange. In contrast, South Africa has the most active stock exchange in Africa. Firms in South Africa are also much larger than firms in Angola and South African firms undertake more borrowing from commercial banks. Both countries do, however, have a low saving rate which could be increased if the rate of interest was raised.

Explain two impacts of an increase in interest rates on a country's macroeconomic aims

Tanzania is a low-income country with relatively high import tariffs. Between 2012 and 2015, Tanzania experienced a high economic growth rate. This allowed the government to provide more public goods. The government also increased its investment in the merit goods of education and healthcare. Tanzania’s central bank influenced household borrowing and spending with the aim of achieving price stability. As a result the country’s inflation rate fell, with money losing less of its value.

Analyse how a central bank might reduce household borrowing.

Changes in tobacco production and consumption can have both microeconomic and macroeconomic effects. Tobacco plants are grown in at least 124 countries with different levels of development. A higher proportion of the poor than of the rich consume tobacco products. The market for cigarettes, produced using tobacco, is changing. Demand for cigarettes and some other demerit goods is declining in a number of countries.

Analyse how a cut in the interest rate could reduce poverty.

Angola is an African country without a stock exchange. In contrast, South Africa has the most active stock exchange in Africa. Firms in South Africa are also much larger than firms in Angola and South African firms undertake more borrowing from commercial banks. Both countries do, however, have a low saving rate which could be increased if the rate of interest was raised.

Analyse how firms may be affected by a rise in the rate of interest.

After the UK’s decision to leave the European Union (EU) in June 2016, the value of the British currency, the pound (£), depreciated. However, in August 2016, despite the fall in the value of the £, the Bank of England reduced interest rates from 0.5% to 0.25%. This was to encourage further spending and borrowing to avoid a lower economic growth rate.

Discuss whether or not a fall in interest rates will benefit an economy.

There was a significant increase in the money supply in Angola in 2019. The National Bank of Angola was concerned that this would keep inflation above 17% and harm Angola’s producers. The Angolan government had concentrated on reducing unemployment, which had fallen from 10% in 2010 to 7% in 2019

Discuss whether an increase in the money supply will always increase inflation (8)