Medium2 marksMultiple Choice
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?
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
32 questions · hints · full answers · grading
More questions from this exam
Q01A global wildlife conservation NGO, 'FaunaProtect', is evaluating its financial management object...EasyQ03'CloudSync', a rapidly growing SaaS (Software as a Service) startup, is experiencing cash flow di...MediumQ04'AgriGrow', an organic fertilizer producer, uses 10,000 tonnes of raw compost annually. The cost ...EasyQ05'SteelForge Inc' is deciding between two heavy forging machines. Machine A has a life of 3 years ...MediumQ06'AstroTour', a space tourism startup, is appraising a 10-year project. The company expects genera...Easy
Expert