- CFA Exams
- CFA Level I Exam
- Topic 2. Economics
- Learning Module 4. Monetary Policy
- Subject 3. Monetary Policy Objectives
CFA Practice Question
Assume the neutral rate of interest is considered to be 4.5% at the moment. The current interest rate is 6%. The central bank decides to lower the interest rate to 5.5%. The central bank's current monetary policy is ______.
A. contractionary
B. expansionary
C. cannot determine
Explanation: The policy is still contractionary, although the central bank is going to lower the interest rate. If the policy rate is higher than the neutral rate, then the policy is contractionary; if it is lower, then it is expansionary.
User Contributed Comments 4
| User | Comment |
|---|---|
| tijean25 | Whatever |
| JENUWINE | -_____- |
| KrzysztofW | You made my day tijean25 |
| will080912 | Interes rate> neutral rate >>> contractionary Interest rate< neutral rate >>> expansionary |