ACCA Applied Knowledge · Business and Technology · Macroeconomic factors
Which of the following is an example of monetary policy rather than fiscal policy?
Changing the reserve requirement for banks is monetary policy, because it influences the money supply and credit availability through the banking system. Altering corporation tax or public sector pay concerns government taxation and spending, which is fiscal policy.
- AA change to the rate of corporation tax
- BA change to the reserve requirement imposed on banksCorrect
- CA change to the level of public sector pay
Explanation
Monetary policy works through the money supply, interest rates and credit, controlled by the central bank. Reserve requirements limit how much banks can lend. Corporation tax and public sector pay are government taxation and spending decisions, which are fiscal policy.
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