ExpertEasy1 markMultiple Choice
ACCA · Question 31 · Syllabus A: The business organisation and its external environment
Section A
The central bank of a country decides to increase the base interest rate to combat rising inflation. Is this an example of fiscal policy or monetary policy?
Section A
The central bank of a country decides to increase the base interest rate to combat rising inflation. Is this an example of fiscal policy or monetary policy?
Answer options:
A.
Fiscal policy
B.
Monetary policy
How to approach this question
Remember that central banks handle 'money' (interest rates, money supply) = Monetary policy. Governments handle 'finances' (taxes, spending) = Fiscal policy.
Full Answer
B.Monetary policy✓ Correct
Monetary policy is the process by which the monetary authority of a country, typically the central bank, controls either the cost of very short-term borrowing or the monetary base, often targeting an inflation rate or interest rate to ensure price stability.
Common mistakes
Confusing fiscal and monetary policy.
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