5.3 Monetary policy

a) Assess whether expansionary monetary policy is the best method to correct deflation and restore price stability.

b) Assess which expansionary macroeconomic policy would be most likely to enable a government to meet its economic objective of a low rate of unemployment. [12]

In many economies, the use of cash is declining as people use contactless payments that transfer funds directly between bank deposits.

a) Discuss whether an expansionary monetary policy will be successful in correcting deflation. [12]

b) Discuss whether a contractionary monetary policy is the best way to reduce the rate of inflation. [12]

b) Discuss whether a policy of increasing interest rates is the best way of controlling a rising rate of inflation in an economy. [12]

b) Discuss whether a government should use monetary policy or fiscal policy to solve the problem of deflation in an economy. [12]

The annual rate of inflation in an economy increased sharply and unexpectedly.

b) Discuss whether a government should Discuss whether a substantial rise in interest rates is the best way of correcting this increased rate of inflation. [12]

b) Discuss whether monetary policy measures are always effective in correcting a high rate of inflation. [12]