Economics 2

CFA Level I Economics
#1

An increase in the official policy rate will most likely lead to:

  1. gradual increases in commercial banks’ base rates.
  2. reduced credit availability.
  3. contracting commercial bank liquidity.

Solution

B is correct. An increase in the policy rate will likely raise the potential penalty that banks will have to pay if they run short of liquidity and thereby reduces their willingness to lend.

don’t you think all three options are similar and correct somehow??

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#2

Option #1 . Not Gradual but instantaneous. Both are closely tied…else arbitrage will rule.

Option # 2 and 3. Very close. Either one is right. However to pick and choose “ which one is more relevant aka correct”, B becomes the choice. Very easy to be stumped by such qs.

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