Fundamentals of Monetary Economics Quiz

Central banks regulate the economy by controlling inflation rates.

M1 represents the total amount of currency in circulation plus demand deposits.

The Federal Reserve System regulates the nation's monetary policy, influencing interest rates and money supply.

Fiat money is currency issued by a government that must be accepted as a means of payment.

Money serves as a medium of exchange, store of value, and unit of account, but it is not a unit of labor.

Expansionary fiscal policy involves increasing government spending or reducing taxes to stimulate economic growth during downturns.

Open market operations involve buying and selling government securities to control the money supply.

The lender of last resort injects liquidity into banks during financial crises to prevent collapse.

The Taylor Rule guides central banks in adjusting interest rates based on inflation and economic output gaps.

Increasing the reserve requirement reduces the amount of money banks can lend, thereby decreasing the money supply.

The Phillips curve illustrates the inverse relationship between unemployment and inflation.

Seigniorage refers to the profit earned by the government from issuing currency.

An increase in the money supply, with constant velocity and output, leads to a proportional rise in the price level.

Central banks primarily use open market operations to influence short-term interest rates.

The LM curve shows the equilibrium relationship between the money market and the real economy, indicating how changes in money supply affect output and interest rates.

The ECB is responsible for formulating and implementing monetary policy in the Eurozone.

The Taylor Principle suggests that central banks should respond aggressively to changes in inflation to maintain price stability.

Automatic stabilizers like unemployment benefits automatically kick in during economic downturns, providing income support to those who lose their jobs.