Association of Chartered Certified Accountants (ACCA) Certification Practice Test

What does monetary policy primarily influence?

1. The regulation of international trade

2. The rate of inflation in a country

3. The protection of consumer rights

4. The overall supply of money and credit in the economy

The correct answer is: The overall supply of money and credit in the economy

Monetary policy primarily influences the overall supply of money and credit in the economy because it involves the actions taken by a country's central bank to manage the money supply and interest rates. These actions include controlling inflation, influencing employment levels, and stabilizing the currency. By adjusting interest rates, the central bank can encourage borrowing and spending or, conversely, promote savings by making borrowing more expensive. This manipulation of the monetary environment affects the total amount of money circulating in the economy, which in turn impacts economic growth and inflation rates. Other options relate to different aspects of economic and regulatory frameworks. For instance, regulating international trade concerns tariffs and trade agreements rather than monetary policy. Issues regarding consumer rights address protection laws and practices related to consumers, which fall under a different regulatory domain. While monetary policy does indirectly affect the rate of inflation, it is more accurate to state that it directly influences the supply of money and credit which subsequently affects inflation.