Non-Activist Monetary Policy: Explained | CFA Level 1 Exam Prep

Non-Activist Monetary Policy

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Question

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

Answers

A. The government allows tax revenues to rise and fall with the business cycle, while keeping spending constant.

B. The Central Bank acts to smooth the business cycle.

C. The Central Bank attempts to keep inflation at a minimum, ignoring unemployment.

D. The Central Bank prints new currency each year in order to increase the money supply by 3%.

E. The Central Bank targets short-term interest rates. D

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Explanations

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A. B. C. D. E.

Explanation

An activist monetary policy involves a changing policy in reaction to economic events. A classic example of non-activist policy would be one that increases the money supply by a certain amount each year.

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