Medium2 marksMultiple Choice
Financial Management EnvironmentSection AFinancial ManagementSyllabus BMacroeconomics

ACCA · Question 02 · Financial Management Environment

A national government has recently implemented an expansionary monetary policy to stimulate the economy. 'SunWind Energy', a renewable energy firm, is assessing the macroeconomic impact on its operations.

Which TWO of the following are likely consequences of this expansionary monetary policy for SunWind Energy?

Answer options:

A.

A decrease in the cost of borrowing for new solar farm investments.

B.

An appreciation of the domestic currency, making imported solar panels cheaper.

C.

An increase in consumer demand for energy due to higher overall economic activity.

D.

A significant increase in corporate tax rates to fund the policy.

How to approach this question

Identify the tools and effects of expansionary monetary policy (lower interest rates, increased money supply) and distinguish them from fiscal policy.

Full Answer

Expansionary monetary policy involves increasing the money supply and lowering interest rates. This makes borrowing cheaper for companies like SunWind Energy (Option A). The resulting economic stimulation generally increases aggregate demand, leading to higher energy consumption (Option C). Option B is incorrect because lower interest rates typically cause currency depreciation. Option D is incorrect because tax changes are fiscal, not monetary, policy.

Common mistakes

Confusing monetary policy (central bank, interest rates) with fiscal policy (government, taxation/spending).

Practice the full ACCA FM — Financial Management Practice Exam 3

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