Explain two tools open to a central bank to conduct expansionary monetary policy.

Using real-world examples, evaluate the effectiveness of monetary policy to achieve low unemployment.

Answers may include:

• Definition: expansionary monetary policy.
• Explanation: of any two of the following instruments—open market operations, minimum reserve requirement, base rate changes and quantitative easing.
• Diagram: money market diagram to show interest rates falling or AD/AS diagram.

Answers may include:

• Definition: monetary policy, low unemployment.
• Explanation: of the impacts that might occur on the economy as a result of its use on employment, growth, inflation and trade.
• Diagram: AD/AS diagram.
• Synthesis (evaluate): strengths and limitations of monetary policy in achieving low unemployment. Monetary policy is incremental, easily changed, flexible, fast to implement, does not burden the government’s budget; it is less effective with close to zero interest rates, and ineffective when business/consumer confidence is low; effectiveness may depend on the type of unemployment.
• Examples: real-world examples where governments have attempted to lower unemployment using monetary policy.

N.B. It should be noted that definitions, theory and examples that have already been given in part (a), and then referred to in part (b), should be rewarded