AQA · Macroeconomics · Financial markets and monetary policy

AQA Economics past paper questions: Financial markets and monetary policy

Every AQA question on Financial markets and monetary policy from 2016 to 2025: 4 essays, 16 data response questions and 44 multiple choice questions. It covers Monetary policy & interest rates, Money & banking, Inflation & deflation, Aggregate demand and Fiscal policy & public finances. Each question links to its paper, mark scheme and examiner report.

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SubtopicsMonetary policy & interest rates 35Money & banking 35Inflation & deflation 10Aggregate demand 3Fiscal policy & public finances 2Macro objectives & conflicts 1Unemployment 1Exchange rates 1Competition policy & regulation 1

Essay questions on financial markets and monetary policy

A-level Paper 2, June 2019, Q11Explain15 marks
Explain how the monetary policy transmission mechanism works when the Monetary Policy Committee (MPC) raises Bank Rate.

Examiner insight

What to cover
A higher Bank Rate raises market interest rates. Borrowing falls, saving rises, asset prices fall and the pound strengthens. Consumption, investment and net exports fall, so AD and inflation fall.
Watch out
Explain each step in the chain, and mention time lags.
Question paper p.6Mark scheme p.19Open in the toolPractise the AD/AS diagram

Data response questions on financial markets and monetary policy

A-level Paper 2, June 2023, Q7Explain9 marks

Context 2: Quantitative easing in the UK

Extract E (lines 4–5) states: ‘...banks in the UK decreased lending, reducing the availability of credit for households and firms. This damaged the real economy and created high unemployment.’ With the help of a diagram, explain how reduced availability of credit from banks may lead to increased unemployment.

Examiner insight

What to cover
Less credit reduces consumption and investment, so AD and output fall and firms employ fewer workers.
Watch out
Link to unemployment clearly.
Question paper p.5Mark scheme p.12Examiner report p.4Open in the toolDraw it: AD/AS diagram
A-level Paper 2, June 2023, Q8Assess25 marks

Context 2: Quantitative easing in the UK

Extract F (lines 18–19) states: ‘Some say that the use of QE is a dangerous addiction and its overuse can lead to problems in the future.’ Using the data in the extracts and your knowledge of economics, assess the view that the continued use of quantitative easing (QE) is damaging for the UK economy.

Examiner insight

What to cover
QE can cause asset bubbles, inequality and inflation risk.
Watch out
Define QE clearly.
Question paper p.5Mark scheme p.14Examiner report p.5Open in the toolPractise the AD/AS diagram
AS Paper 2, June 2023, Q25Explain10 marks

Context 1: Inflation

Extract B (lines 7–9) states: ‘With this in mind, the government sets the target rate of inflation that the Bank of England’s Monetary Policy Committee (MPC) has to achieve.’ Explain two factors considered by the Bank of England’s MPC when setting Bank Rate.

Examiner insight

What to cover
Factors: inflation expectations, growth, wage growth, the exchange rate and spare capacity.
Watch out
Explain two factors clearly.
Question paper p.17Mark scheme p.10Insert p.1Open in the toolPractise the AD/AS diagram
AS Paper 2, June 2023, Q26Assess25 marks

Context 1: Inflation

Extract C (lines 18–19) states: ‘It remains to be seen whether very low interest rates are good for the economy.’ Use the extracts and your knowledge of economics to assess the view that very low interest rates are good for the UK economy.

Examiner insight

What to cover
Low interest rates support borrowing, spending and growth.
Watch out
Use the extracts.
Question paper p.19Mark scheme p.11Insert p.1Open in the toolPractise the AD/AS diagram
A-level Paper 2, June 2018, Q8Evaluate25 marks

Context 2: Monetary policy and stability

Extract F (lines 10–12) states ‘The Austrian economist, Friedrich Hayek, highlighted artificially low interest rates and excessive credit creation as being the main causes of cyclical instability.’ Using the data in the extracts and your knowledge of economics, evaluate the view that maintaining low interest rates for a sustained period of time may be damaging to the UK’s macroeconomic stability.

Examiner insight

What to cover
Low rates for long periods can cause asset bubbles, excess credit and debt, and little room to cut in a downturn.
Watch out
Use Hayek's point from the extract.
Question paper p.5Mark scheme p.12Open in the toolPractise the AD/AS diagram
AS Paper 2, June 2018, Q25Explain10 marks

Context 1: Economic shocks and the UK economy

Extract B (lines 9–11) states ‘The Bank of England’s Monetary Policy Committee loosened its monetary policy in an attempt to prevent a downturn in the economic cycle.’ Explain how monetary policy might help to prevent a downturn in the economic cycle.

Examiner insight

What to cover
Lower interest rates and QE raise borrowing and spending, so AD rises and a downturn is less likely.
Watch out
Explain the transmission mechanism.
Question paper p.16Mark scheme p.11Insert p.1Open in the toolPractise the AD/AS diagramPractise the economic cycle diagram
AS Paper 2, June 2017, Q26Assess25 marks

Context 1: Managing the UK economy

Extract C (lines 13–15) states ‘A tighter fiscal policy was adopted to reduce the budget deficit. Meanwhile, loose monetary policy was used to bring about a recovery of the UK economy.’ Use the extracts and your knowledge of economics to assess the contribution that fiscal policy and monetary policy can make in sustaining the recovery of an economy, such as the UK.

Examiner insight

What to cover
Tight fiscal policy reduced AD; loose monetary policy raised AD.
Watch out
Use the extracts.
Question paper p.17Mark scheme p.11Insert p.1Open in the toolPractise the AD/AS diagram
A-level Paper 2, Specimen, Q7Explain9 marks

Context 2: Government policy

Extract E (lines 4–6) states ‘the UK may soon be growing at an annual rate of between 3 and 4% and the Bank could not be certain when it might need to tighten policy.’ With the help of a diagram, explain why interest rates may need to rise if growth rates increase.

Examiner insight

What to cover
Faster growth raises AD towards or beyond capacity, which creates inflation pressure. The Bank of England may raise rates to keep inflation near target.
Watch out
Link growth, spare capacity and inflation, then the interest rate response.
Question paper p.5Mark scheme p.11Open in the toolDraw it: AD/AS diagram
A-level Paper 2, Specimen, Q8Evaluate25 marks

Context 2: Government policy

Extract F (lines 14–17) states ‘Investment forecasts are being revised downward and on top of speculation of interest rate rises and criticism of the UK’s quantitative easing programme, the outlook is not looking as good as forecasts first indicated.’ Using the data in the extracts and your economic knowledge, evaluate the effectiveness of monetary policy in achieving macroeconomic stability in the UK.

Examiner insight

What to cover
Monetary policy (Bank Rate, QE, forward guidance) changes AD through borrowing, saving, asset prices and the exchange rate.
Watch out
Define macroeconomic stability and judge against it.
Question paper p.5Mark scheme p.12Open in the toolPractise the AD/AS diagram

Multiple choice questions

  1. A-level Paper 3, June 2025, Q17

    Which one of the following is most likely to be included in a broad measure of the money supply but not in a narrow measure of the money supply?

  2. A-level Paper 3, June 2025, Q18

    Table 5 shows the liquidity ratio and capital ratio for two, otherwise identical, banks. Table 5 Liquidity ratio Capital ratio Bank Y 0.03:1 12.1% Bank Z 0.05:1 14.4% All other things being equal, it is likely that

  3. AS Paper 2, June 2025, Q17

    Which one of the following is most likely to contribute to a decision by the Bank of England’s Monetary Policy Committee to increase Bank Rate?

  4. A-level Paper 3, June 2024, Q15

    Which one of the following functions of money is likely to be most effective during a period of deflation?

  5. A-level Paper 3, June 2024, Q24

    Following a reduction in the level of cash reserves required by the regulator, a commercial bank increases its mortgage lending. Which one of the following describes how the bank’s liquidity and profitability are most likely to change?

  6. AS Paper 2, June 2024, Q14

    Which one of the following statements regarding UK monetary policy is true?

  7. A-level Paper 3, June 2023, Q6

    A central bank has raised interest rates as part of monetary policy. Which one of the following policy objectives is this most likely to assist the government in achieving?

  8. A-level Paper 3, June 2023, Q12

    The quantity theory of money can be explained using Irving Fisher’s equation of exchange, MV=PQ. Monetarist economists believe that the theory helps to explain inflation because some parts of the equation are normally stable. Which parts…

  9. A-level Paper 3, June 2023, Q18

    Which one of the following is a policy that the Bank of England is most likely to undertake if it wants to increase the money supply?

  10. A-level Paper 3, June 2023, Q29

    Which one of the following is an example of moral hazard resulting from the regulation of a financial system?

  11. AS Paper 2, June 2023, Q18

    Which one of the following is an example of a contractionary fiscal policy designed to reduce inflation while, at the same time, minimising the negative impact on the economy’s potential for long-run economic growth?

  12. A-level Paper 3, June 2022, Q10

    In an economy, an index showing the change in the money supply multiplied by the velocity of circulation increases from 100 to 115.5. At the same time, the final output produced by the economy increases from 100 to 110. According to…

  13. A-level Paper 3, June 2022, Q11

    Systemic risk is most likely to occur in financial systems when

  14. A-level Paper 3, June 2022, Q25

    The price of a government bond was £10 000 when it was issued. The bond does not have a maturity date and the government is not intending to buy back the bond. The bond pays £200 per year to the bond holder and has a market price of £8…

  15. A-level Paper 3, June 2022, Q26

    Table 5 contains figures from the balance sheet of a commercial bank. Table 5 Item Value (£ bn) Cash Share capital 100 Loans advanced 135 Fixed assets 115 Long-term liabilities Investments Reserves (retained profit) Balances at the central…

  16. AS Paper 2, June 2022, Q9

    An economy has a positive output gap and the government decides to increase interest rates. Which one of the following outcomes is most likely to result from the higher interest rates? Investment Output gap Savings

  17. A-level Paper 3, November 2021, Q7

    Table 2 contains a simple balance sheet for a bank. Table 2 Assets (£ billion) Liabilities (£ billion) Customer Cash Deposits 700 Cash held at Money owed to Central Bank 70 Central Bank Money owed to Securities held 130 other banks 170…

  18. A-level Paper 3, November 2021, Q14

    The Bank of England’s Monetary Policy Committee increases Bank Rate to reduce the risk of an increase in inflationary pressure in the economy. All other things being equal, which one of the following is most likely to result from the…

  19. A-level Paper 3, November 2021, Q26

    The money market is the financial market in which

  20. A-level Paper 3, November 2020, Q9

    A long-dated £100 government bond with a coupon rate of 5% has a current market value of £125. This implies that the

  21. A-level Paper 3, November 2020, Q10

    All other things being equal, in which one of the following circumstances is the Bank of England most likely to raise Bank Rate to maintain financial stability?

  22. A-level Paper 3, November 2020, Q24

    Moral hazard results when individuals and organisations make investment decisions

  23. AS Paper 2, June 2020, Q16

    Output of the UK economy is at the normal capacity level and the Bank of England decides to implement measures to restrict the supply of credit to households. The most likely reason for this policy is that

  24. A-level Paper 3, June 2019, Q9

    All other things being equal, if the velocity of circulation is constant, the quantity theory of money based on Fisher’s equation of exchange, MV=PQ, predicts that an x% increase in the money supply will always cause an x%

  25. A-level Paper 3, June 2019, Q20

    A company has an issued share capital of £1 million and an outstanding corporate bond issue of £200 000. To fund its expansion, the company issues additional corporate bonds for £300 000. All other things being equal, after the issue of…

  26. A-level Paper 3, June 2019, Q21

    Despite its central bank operating a policy of quantitative easing for several years, an economy has rising unemployment and a rate of inflation significantly below the target rate set by the government. All other things being equal, which…

  27. A-level Paper 3, June 2019, Q23

    The table below shows different combinations of changes in a commercial bank’s liquidity and capital ratios. All other things being equal, which one of the following combinations, A, B, C or D, is most likely to improve the bank’s…

  28. AS Paper 2, June 2019, Q16

    The Monetary Policy Committee of the Bank of England has to assess inflationary pressures when deciding on the level of Bank Rate. Which one of the following pieces of information is most likely to persuade the Committee to raise Bank Rate?

  29. A-level Paper 3, June 2018, Q7

    In recent years, several central banks around the world have implemented a policy of quantitative easing (QE). All other things being equal, which one of the following combinations A, B, C or D, is most likely to be the result of this…

  30. A-level Paper 3, June 2018, Q17

    A large, unexpected decline in house prices could lead to a systemic crisis in the financial system. This is most likely to happen if, following the fall in house prices, commercial banks and building societies

  31. A-level Paper 3, June 2018, Q25

    The diagram below shows two aggregate demand (AD) curves, two short-run aggregate supply (SRAS) curves, and the long-run aggregate supply (LRAS) curve for an economy. The increase in the price level from P1 to P2 raises the rate of…

  32. AS Paper 2, June 2018, Q1

    Which one of the following indicates a contractionary monetary policy?

  33. AS Paper 2, June 2018, Q14

    The table below shows four possible sets of circumstances for the UK economy. Which set of circumstances is most likely to cause the Monetary Policy Committee of the Bank of England to raise bank rate? Output gap Exchange rate

  34. AS Paper 2, June 2018, Q18

    An expansionary monetary policy has been implemented. Which one of the following combinations of macroeconomic changes is most likely to happen?

  35. A-level Paper 3, June 2017, Q20

    A bank makes a new loan to a customer. All other things being equal, which combination of events, A, B, C or D, shows what will happen? Bank’s Bank’s assets Money supply liabilities

  36. A-level Paper 3, June 2017, Q21

    A government issued bond has a nominal value of £100 and the annual coupon is £6. The bond has 35 years until maturity. Its current yield is 5%. The current market price of the bond is

  37. A-level Paper 3, June 2017, Q22

    Which one of the following combinations, A, B, C or D, best distinguishes between the functions of the money market and the capital market? Money market Capital market The market where foreign The market for issuing new

  38. AS Paper 2, June 2017, Q3

    Which one of the following is not part of the role of the Monetary Policy Committee of the Bank of England?

  39. AS Paper 2, June 2017, Q17

    The table below shows four possible combinations of circumstances facing the UK economy. All other things being equal, which one of the following combinations is most likely to lead the Monetary Policy Committee of the Bank of England to…

  40. AS Paper 2, June 2016, Q15

    All other things being equal, an increase in the exchange rate of the pound against other currencies due to a rise in interest rates is most likely to cause an increase in the UK’s

  41. A-level Paper 3, Specimen, Q11

    Three aims of commercial banks are liquidity, profitability and security. To achieve these aims, the banks hold a range of assets. Which one of the following shows a list of banks’ assets ranging from the most liquid to the least liquid?…

  42. A-level Paper 3, Specimen, Q23

    According to the Quantity Theory of Money, as illustrated by the equation of exchange MV = PQ, a rise in the money supply will have most effect on inflation when which one of the following combination of events occurs? Velocity of Final…

  43. A-level Paper 3, Specimen, Q25

    In 2012, the UK Government issued a £100 bond with a coupon of £3 per annum and 40 years until maturity. Two years later, the interest that could be earned on a similar asset had risen to 6%. What is likely to have happened to the price of…

  44. AS Paper 2, Specimen, Q18

    Which one of the following is an example of expansionary monetary policy? An increase in

Question text is quoted from the question papers, © AQA, for students’ private study. Open the official papers and mark schemes from the links on each question. Examiner insights are written with AI assistance and moderated by Finn.