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SA7 April 2020 Q1 (ii)

R

radex

Member
The question asks "Explain why there is a risk of a significant correction in domestic asset prices from the new policy (Quantitative Tightening)."

My answer was based on explaining why QT leads to fall in asset prices. Hence explaining the economic factors (money supply, interest rates, exchange rate) formed the core of my answer.
However, on reading the examiner solution, it seems that the solution is inclined towards answering "why fall in asset prices due to QT is more than rise in asset prices due to QE". Also most of the solution totally ignores commenting on the economic factors.

What keywords in question would have helped to understand what the examiner intended in the solution (ie not basing the solution on economic factors)?
 
One issue is that part (i) is all about why QT leads to assets prices falling, and covers economic factors, money supply .... So your answer to part (ii) looks similar to your answer to part (i)? The only difference between (i) and (ii) is really the description "significant correction". Its easier to brainstorm this when you are not in an exam room, but the examiner wanted you to discuss the prospects for a more sudden and severe collapse in asset prices, whereas part (i) was the long term more gradual effects. The solution to (ii) does overlap (i) a bit but focuses on the possibility of a sudden collapse rather than a gradual fall.
 
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