#1
Which of the following is NOT a function of money in an economy?
Store of labor
ExplanationMoney does not store labor value.
#2
What is the term used to describe the situation when the general price level is consistently falling over time?
Deflation
ExplanationDeflation refers to a consistent decrease in the general price level over time.
#3
What is the term used to describe the central bank's ability to influence the money supply and interest rates?
Monetary policy
ExplanationMonetary policy refers to the central bank's ability to influence money supply and interest rates.
#4
What is the term for the percentage of deposits that banks are required to hold as reserves?
Reserve ratio
ExplanationThe percentage of deposits that banks must hold as reserves is known as the reserve ratio.
#5
What is the term for the interest rate at which the central bank lends money to commercial banks for a short term?
Discount rate
ExplanationThe interest rate at which the central bank lends money to commercial banks for a short term is the discount rate.
#6
In the context of monetary policy, what does the term 'open market operations' refer to?
Buying and selling of government securities by the central bank
ExplanationOpen market operations involve central banks buying and selling government securities.
#7
Which of the following is true about the 'quantity theory of money'?
It states that the price level is determined by the quantity of money in circulation
ExplanationThe quantity theory of money asserts that the price level is related to the amount of money in circulation.
#8
Which of the following is a characteristic of fiat money?
Value determined by government decree
ExplanationFiat money derives its value from government regulation or decree.
#9
What is the name of the rate at which banks lend to each other overnight?
Federal funds rate
ExplanationThe rate at which banks lend to each other overnight is called the federal funds rate.
#10
Which of the following is NOT a function of the central bank?
Fiscal policy implementation
ExplanationThe central bank typically does not implement fiscal policy.
#11
What is the role of the central bank in controlling inflation through monetary policy?
By reducing the money supply
ExplanationCentral banks control inflation by decreasing the money supply.
#12
What is the significance of the Taylor Rule in monetary policy?
It provides guidelines for central banks to set interest rates based on economic conditions
ExplanationThe Taylor Rule guides central banks in setting interest rates according to economic conditions.
#13
What is the primary tool used by central banks to control the money supply?
Interest rates
ExplanationCentral banks primarily control the money supply through interest rates.
#14
What effect does an expansionary monetary policy typically have on interest rates?
Decreases interest rates
ExplanationExpansionary monetary policy typically leads to a decrease in interest rates.
#15
What does the term 'moral suasion' refer to in monetary policy?
The use of persuasion and influence by the central bank to achieve policy objectives
ExplanationMoral suasion involves the central bank using persuasion and influence to achieve policy objectives.