Monetary Policy and Money Supply Quiz

Monetary policy is a tool used by central banks to control the money supply.

The primary objective of monetary policy is stabilizing the economy.

Unit of labor is NOT a function of money.

'M1' represents the total currency in circulation in the context of monetary policy.

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

Adjusting reserve requirements is NOT used in open market operations.

When the central bank sells government securities, the money supply decreases.

The process where banks hold only a fraction of their deposits to meet withdrawals is called fractional reserve banking.

When the Federal Reserve decreases the reserve requirement, the money supply increases.

The total amount of money in circulation in an economy is called M2 money supply.

The interest rate at which commercial banks can borrow reserves from the central bank is called the discount rate.

The policy used by central banks to increase the money supply by buying government securities is called expansionary monetary policy.

A contractionary monetary policy is characterized by a decrease in the money supply.

Expansionary monetary policy can increase inflation.

The interest rate at which the central bank lends money to commercial banks overnight is called the federal funds rate.