Monetary Policy (Interest Rates, Quantitative Easing)

OCR

GCSE

Objectives

Exam Tips

Pitfalls

Key Terms

Mark Points

Key skills and knowledge for this topic

Award marks for explicit links between interest rates, cost of borrowing, and reward for saving
Credit analysis that connects changes in consumption (C) and investment (I) to shifts in Aggregate Demand
Candidates must distinguish between the impacts on savers versus borrowers (mortgage holders)
High-level responses must evaluate the effectiveness of monetary policy considering time lags or consumer confidence
Credit accurate definition of Quantitative Easing as the purchase of government bonds to increase money supply

Key points examiners look for in your answers

Award marks for explicit links between interest rates, cost of borrowing, and reward for saving
Credit analysis that connects changes in consumption (C) and investment (I) to shifts in Aggregate Demand
Candidates must distinguish between the impacts on savers versus borrowers (mortgage holders)
High-level responses must evaluate the effectiveness of monetary policy considering time lags or consumer confidence
Credit accurate definition of Quantitative Easing as the purchase of government bonds to increase money supply

Expert advice for maximising your marks

💡Use the acronym AD=C+I+G+(X-M) to structure analysis of how rate changes affect specific components
💡When evaluating, consider the 'magnitude' of the rate change and the current level of 'consumer confidence'
💡Always reference the specific data or text provided in the case study to secure AO2 marks
💡Ensure the distinction between 'nominal' and 'real' interest rates is understood for top-band responses

Pitfalls to avoid in your exam answers

Confusing Monetary Policy (Bank of England/Interest Rates) with Fiscal Policy (Government/Tax/Spend)
Asserting that the Government sets the interest rate rather than the independent MPC
Stating that high interest rates cause inflation, rather than being used to cure high inflation
Assuming interest rate changes have an immediate impact on the economy (ignoring time lags)

Comprehensive revision notes & examples

How questions on this topic are typically asked

State

Explain

Calculate

Analyse

Discuss

Evaluate

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