ACCA Financial Management (F9) Certification Practice Exam

Which of the following is the primary goal of monetary policy?

1. To control inflation and stabilize the currency

2. To improve employment rates

3. To directly influence government spending

4. To manage international trade relations

The correct answer is: To control inflation and stabilize the currency

The primary goal of monetary policy is to control inflation and stabilize the currency. This involves the use of various tools by central banks, such as setting interest rates, influencing money supply, and managing inflation targets, to ensure that prices remain stable over time. Controlling inflation is crucial because high inflation can erode purchasing power and create uncertainty in the economy, while deflation can slow down economic growth. By stabilizing the currency, monetary policy also helps maintain trust in the monetary system, which is essential for economic stability. While improving employment rates is an important objective, it is usually considered a secondary goal of monetary policy. Central banks often view employment levels as an outcome of their primary focus on inflation control and currency stability. Directly influencing government spending and managing international trade relations are typically outside the purview of monetary policy, as these actions are more associated with fiscal policy and other governmental strategies.