Monetary Systems and Economic Policies Quiz

Money primarily serves as a medium of exchange, unit of account, and store of value; resource allocation is a broader economic concept.

Unlike private banks, central banks prioritize economic stability and monetary policy effectiveness over profit maximization.

M1 includes physical currency and demand deposits, representing the most liquid forms of money.

The Federal Reserve, or the Fed, is the central bank of the United States and oversees monetary policy.

Hyperinflation occurs when there is an excessive and rapid increase in the money supply, leading to a sharp devaluation of the currency.

The gold standard pegs a country's currency to a fixed quantity of gold, providing stability to the monetary system.

Central banks adjust interest rates to influence borrowing, spending, and, consequently, the overall money supply.

Deflation is marked by a general decrease in the prices of goods and services, potentially leading to economic challenges.

Open market operations involve the central bank buying or selling government securities to influence the money supply and interest rates.

The discount rate is the interest rate at which commercial banks can borrow from the Federal Reserve.

Central banks intervene in foreign exchange markets to stabilize and maintain the value of their currencies under a pegged exchange rate system.

Expansionary monetary policy aims to boost economic activity by increasing the money supply and lowering interest rates.

Expanding government spending is a fiscal policy tool used to stimulate economic growth and demand.

Devaluation refers to a deliberate reduction in the value of a currency, often done by a government.