Lesson M3.2.1

M3.2.1 Monetary policy tools and their effectiveness Quiz: OCR Economics, Unit 8

20 questions

Written by Revision Ninja · Last reviewed 11 October 2026

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Lesson M3.2.1, Monetary policy tools and their effectiveness: 20 multiple choice questions for the OCR Economics (H460), Unit 8: Implementing policy, written with Revision Ninja.

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The 20 questions

  1. Who sets the official UK inflation target that the Monetary Policy Committee must achieve?

    • The Governor
    • The MPC
    • Financial Conduct Authority
    • The Chancellor

  2. What is the official CPI inflation target set by the UK government for the Bank of England?

    • 1%
    • 3%
    • 2%
    • 5%

  3. Which Bank of England committee is responsible for setting the official UK Bank Rate?

    • Debt Management Office
    • Prudential Regulation Authority
    • Financial Policy Committee
    • Monetary Policy Committee

  4. How many times per year does the Bank of England Monetary Policy Committee announce rate decisions?

    • 8 times
    • 12 times
    • 4 times
    • 24 times

  5. Which monetary policy tool involves the central bank purchasing government bonds directly from financial institutions?

    • Discount window
    • Quantitative easing
    • Forward guidance
    • Reserve requirements

  6. What is the main objective of central bank forward guidance in monetary policy?

    • Controlling money supply
    • Regulating commercial banks
    • Setting tax rates
    • Managing interest expectations

  7. What term describes the estimated delay before a Bank Rate change fully impacts economic activity?

    • 5 to 10 years
    • 3 to 6 months
    • 1 to 3 months
    • 18 to 24 months

  8. What central bank asset purchase target is primarily bought during UK quantitative easing programmes?

    • Government bonds
    • Foreign currencies
    • Corporate equities
    • Commercial property

  9. If the Bank of England increases the Bank Rate, what is the immediate expected effect on market bond prices?

    • Bond prices rise
    • No price effect
    • Bond prices fall
    • Bond prices double

  10. If the Bank of England engages in large-scale Quantitative Easing, what happens to yield on government bonds?

    • Yields decrease
    • Yields stay constant
    • Yields increase
    • Yields double

  11. If hot money flows into the UK following an interest rate increase, what happens to sterling's exchange rate?

    • It depreciates
    • It remains unchanged
    • It collapses
    • It appreciates

  12. If commercial banks refuse to lower borrowing rates despite a central bank rate cut, what has failed?

    • Exchange rate mechanism
    • Fiscal multiplier effect
    • Policy transmission mechanism
    • Capital adequacy ratio

  13. An economy faces zero interest rates, but consumers save extra money created by quantitative easing. What situation exists?

    • Liquidity trap
    • Stagflation
    • Crowding out
    • Negative output gap

  14. How does an increase in the central bank interest rate affect the cost of servicing existing variable mortgages?

    • Eliminates interest costs
    • Decreases borrowing cost
    • Increases borrowing cost
    • Reduces principal debt

  15. If inflation rises to 4% when the UK symmetric target is 2%, what must the Governor write?

    • A banking regulation
    • A new budget
    • An emergency tax
    • An open letter

  16. What is the primary channel through which higher interest rates reduce business investment spending?

    • Lower import tariffs
    • Higher hurdle rate
    • Higher dividend yields
    • Lower corporation tax

  17. Which term describes the condition where monetary policy is powerless to stimulate demand during severe economic collapse?

    • Pulling a lever
    • Paradox of thrift
    • Pushing on a string
    • Moral hazard

  18. How does Quantitative Easing attempt to boost aggregate demand through wealth effects?

    • Lowering government debt
    • Boosting asset prices
    • Reducing income taxes
    • Increasing wage rates

  19. Why might a central bank adopt symmetric inflation targeting rather than asymmetric targeting?

    • Guarantees zero inflation
    • Increases exchange volatility
    • Prevents deflation risk
    • Maximises tax revenue

  20. What intended operational effect did the Bank of England's Funding for Lending Scheme have on commercial banks?

    • Reduced funding costs
    • Enforced higher reserves
    • Capped mortgage sizes
    • Increased tax burden

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