Interest Rates and Monetary Policy Quiz

Central banks typically set short-term interest rates to influence monetary policy.

Open market operations are the primary tool used by central banks to control the money supply and interest rates.

One of the primary objectives of monetary policy is to maximize employment by influencing economic activity.

Bond prices have an inverse relationship with interest rates, meaning they fall when interest rates rise.

'Tightening' in monetary policy refers to the central bank increasing interest rates to control inflation and economic activity.

The Taylor Rule is an economic guideline used to set monetary policy interest rates based on inflation and economic output.

Raising interest rates is a contractionary monetary policy tool, not an expansionary one.

The federal funds rate is the interest rate at which banks lend reserves to each other overnight.

Open market operations involve the buying or selling of government securities by the central bank to influence the money supply.

The primary aim of expansionary monetary policy is to stimulate economic growth by increasing money supply and lowering interest rates.

The discount rate is the rate at which commercial banks can borrow from the central bank during a liquidity shortage.

A liquidity trap occurs when interest rates are extremely low, rendering monetary policy ineffective in stimulating the economy.

Higher interest rates typically lead to higher borrowing costs, not lower.

Selling government bonds is a contractionary monetary policy measure aimed at reducing the money supply and raising interest rates.

The main aim of open market operations is to influence interest rates by adjusting the money supply.