5 past-paper questions on this unit. Three of them are below. Answer on the page: each one is marked the moment you pick, the correct option is shown whether or not you found it, and the full explanation opens either way.
Cambridge IGCSEPaper 1 MCQsFree account
Monetary Policy: three questions to try now
Real past-paper questions, the answer key from the mark scheme, and the explanation that goes with it. No account needed to answer them.
Question 1
A government wishes to pursue an expansionary monetary policy. What should it do?
Answer: D.
Check both halves of the term, because two of the distractors are the right direction in the wrong family and one is the wrong direction. MONETARY means the instrument must be the interest rate or the money supply, and EXPANSIONARY means it must add to demand, and lowering interest rates satisfies both by making borrowing cheaper for households and firms. A is monetary but contractionary, since discouraging bank lending shrinks credit and reduces spending. B and C are both fiscal rather than monetary, because subsidies to firms are government spending and a tax threshold is set in the budget, so neither is an instrument the central bank controls. C fails on direction as well: LOWERING the threshold at which income tax starts to be paid brings more earnings into tax, so it takes spending power out of the economy.
Question 2
An economy has a deficit on its balance of trade in manufactured goods. Which government policy will reduce this deficit?
Answer: D.
A trade deficit in manufactured goods means imports exceed exports, so the policy must make imports less attractive or exports more so. Import duties raise the price of foreign goods and shift demand towards domestic producers. Check the others for direction: cutting subsidies to local manufacturers makes them LESS competitive, and a sales tax on locally made goods penalises exactly the producers you want to help. Higher interest rates tend to strengthen the currency, which makes imports cheaper still.
Question 3
What would be most likely to encourage saving?
Answer: D.
Saving is postponed consumption, and what makes postponing worthwhile is the reward for waiting, which is the rate of interest. A higher rate raises that reward, so saving becomes more attractive relative to spending now and households put more aside. B and C both attack the ABILITY to save rather than the incentive, since a higher income tax rate leaves less to allocate in the first place and a higher goods and services tax means a given amount of spending buys less, so less is left over. A works on a different market altogether, because the exchange rate determines the domestic price of imports and the foreign price of exports and has no direct bearing on what a saver earns.
These questions are drawn from past Cambridge IGCSE papers and filtered to monetary policy. You answer, you find out immediately whether you were right, and you get the reasoning for the correct option and for each distractor. Wrong answers go to a mistakes locker so you can come back to exactly those.
Practice is free. You need an account only so your progress and your mistakes are still there next time.
These are the errors that cost marks on monetary policy, taken from our own topic notes. Read them before you practise and you will recognise the traps in the questions.
Confusing monetary policy (central bank, interest rates) with fiscal policy (government, tax and spending).