#1
Which of the following is an expansionary monetary policy tool?
Decreasing the discount rate
ExplanationReduces cost of borrowing, encouraging spending and investment.
#2
Which of the following is NOT a function of central banks in monetary policy?
Conducting fiscal policy
ExplanationCentral banks primarily focus on monetary, not fiscal, policy.
#3
Which monetary policy tool is used when the central bank buys or sells government securities?
Open market operations
ExplanationDirectly affects money supply by buying/selling securities.
#4
What is the primary objective of expansionary monetary policy?
Stimulating economic growth
ExplanationAim is to increase economic activity, promoting growth.
#5
Which of the following is NOT a tool of expansionary monetary policy?
Increasing reserve requirements
ExplanationRaises costs for banks, restricting lending.
#6
Which of the following is an example of an expansionary monetary policy action?
Lowering the federal funds rate
ExplanationReduces cost of borrowing, encouraging spending.
#7
What is the purpose of Open Market Operations (OMO) in monetary policy?
To control the money supply
ExplanationBuying/selling securities to influence money supply and interest rates.
#8
Which monetary policy tool directly influences the interest rate at which banks borrow from the central bank?
Discount rate
ExplanationDirectly affects cost of borrowing for commercial banks.
#9
Which of the following is NOT a conventional monetary policy instrument?
Quantitative easing
ExplanationQuantitative easing is an unconventional policy involving buying financial assets.
#10
What happens to the money supply when the central bank decreases reserve requirements?
Money supply increases
ExplanationBanks can lend more, increasing overall money supply.
#11
Which of the following is NOT a transmission mechanism of monetary policy?
Government spending
ExplanationGovernment spending is a fiscal, not monetary, policy tool.
#12
What is the term used to describe the rate at which banks lend reserves to each other overnight?
Federal funds rate
ExplanationKey interest rate in interbank lending.
#13
What is the primary objective of contractionary monetary policy?
Reducing inflation
ExplanationAim is to slow down economic activity to curb inflationary pressures.
#14
Which of the following is an example of an automatic stabilizer in monetary policy?
Unemployment benefits
ExplanationAids economic stability by automatically adjusting during downturns.
#15
What is the purpose of forward guidance in monetary policy?
To influence market expectations
ExplanationUsed to shape expectations about future policy actions.
#16
Which of the following is a non-conventional monetary policy tool often used during economic crises?
Quantitative easing
ExplanationAims to boost economy through asset purchases.
#17
What is the main aim of targeting a specific inflation rate in monetary policy?
Maintaining price stability
ExplanationPrevents runaway inflation or deflationary spirals.
#18
Which of the following statements about the Taylor Rule is true?
It provides a guideline for adjusting interest rates based on inflation and output gaps
ExplanationHelps set appropriate interest rates based on economic conditions.