Non-Activist Monetary Policy: A CFA® Level 1 Exam Explanation

Non-Activist Monetary Policy

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Question

Which of the following would be an example of non-activist monetary policy?

Answers

A. The Central Bank attempts to counter-act negative developments in the economy.

B. Inflation is the only target for the Central Bank.

C. The Central Bank tries to keep the money supply constant.

D. The government keeps spending constant and allows tax revenues to rise or fall to compensate for changes in aggregate income.

E. The Central Bank increases the money supply by 5% every year.

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Explanations

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A. B. C. D. E.

The classic non-activist monetary policy example is to increase the money supply by a particular level every year. Activist or discretionary monetary policy involves changing the supply of money to counteract negative developments in the economy.

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