Interest & Exchange Rates

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1. Interest rates are most likely to be cut when the economy is:

  • Experiencing much lower employment
  • Entering a recession
  • Experiencing high inflation
  • Enjoying a boom
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2. What is meant by a fixed interest rate?

  • An interest rate which will not change at whatsoever over the life of a loan
  • An interest rate which can flucuate
  • A tax paid by tradesmen
  • Interest rates will only change if the prime minister says they must

3. Which of the following is NOT a disadvantage of a fixed exchange rate system?

  • Companies will have problems because of uncertainty about import and export prices.
  • Significant capital flows may destabilise the economy.
  • Governments cannot allow the exchange rate to depreciate to restore balance of payments equilibrium.
  • Significant capital flows may destabilise the economy.

4. What is an interest rate?

  • The rate at which foreign goods are bought
  • The percentage reward or payment over a period of time that is given to savers on savings or paid by borrowers on loans
  • A tax paid by consumers when buying foreign goods
  • A tariff on foreign imports

5. In the UK, the base interest rate is set by...

  • Monetary Policy Commitee
  • Chief secretary to the treasury
  • The house of commons
  • The chancellor of the exchequer


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