In December, the Bank of England Reduced Interest Rates by Another

question 214

Multiple Choice

In December, the Bank of England reduced interest rates by another 50 basis points after points a basis point is 0.01 percentage point) it had cut them by 150 basis points in November. But the rate cut may even be larger. Economists ʺ... expect the Monetary Policy Committee [MPC] to cut rates to 2.5 percent,ʺ...while others ʺ...saw a bigger 75 point cutʺ...or ʺa 100 basis point move.ʺ Data show that ʺ... inflation staged its biggest drop since records began ...potentially opening the door to even bigger cuts.ʺ
Reuters, 11/27/2008
If the Bankʹs policies given above can__________ the real long -term interest rate,the Bank will be able to__________

• A) lower; increase aggregate demand
• B) lower; raise the exchange rate
• C) lower; decrease investment
• D) raise; increase short-run aggregate supply