This question from the Jan 2013 paper 'threw' a lot of you.
Firstly you need to think about what are the aims of the Monetary Policy Committee?
- keep inflation low (inflation target of 2%)
- maintain positive economic growth (close to long run trend rate of 2.5%)
- aim for full employment
Then you need to think about whether Monetary Policy Committee has been effective at meeting these targets.
Has the price level been stable? Has it been at 2%? Why, why not?
Has economic growth been stable?
Have the low interest rates worked?
Has quantitative easing worked?
To evaluate think about the causes of inflation; cost push and demand pull. Is monetary policy effective on cost push inflation?
Interest rates and QE have done little in a weak economic climate
But, what would GDP look like without these measures?
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