#1
2. When a commercial bank makes a loan, what happens to the money supply?
It increases
ExplanationMaking a loan by a commercial bank increases the money supply.
#2
6. What is the term for the minimum amount of reserves that a bank is required to hold?
Required Reserves
ExplanationRequired reserves refer to the minimum amount of reserves that a bank is required to hold.
#3
10. What is the term for the percentage of deposits that banks are required to keep as reserves by the central bank?
Reserve Ratio
ExplanationThe reserve ratio refers to the percentage of deposits that banks are required to keep as reserves by the central bank.
#4
1. What is the primary tool used by central banks to control the money supply?
Monetary Policy
ExplanationMonetary policy is the primary tool used by central banks to control the money supply.
#5
3. What is the term for the interest rate at which the central bank lends money to commercial banks?
Discount Rate
ExplanationThe discount rate refers to the interest rate at which the central bank lends money to commercial banks.
#6
5. How does open market operations impact the money supply?
Buying securities increases the money supply
ExplanationOpen market operations increase the money supply by buying securities.
#7
7. How does the Federal Reserve use the discount rate to influence the economy?
To regulate bank lending
ExplanationThe Federal Reserve uses the discount rate to influence the economy by regulating bank lending.
#8
8. What is the function of the Federal Open Market Committee (FOMC) in the United States?
Setting interest rates
ExplanationThe FOMC in the United States is responsible for setting interest rates.
#9
4. In the context of money creation, what does the term 'money multiplier' refer to?
The ratio of currency in circulation to reserves
ExplanationThe money multiplier represents the ratio of currency in circulation to reserves in the context of money creation.
#10
9. When the central bank sells government securities in the open market, what effect does it have on interest rates?
Increases interest rates
ExplanationSelling government securities in the open market increases interest rates.
#11
11. In the context of monetary policy, what does the term 'inflation targeting' refer to?
Controlling the money supply to stabilize prices
ExplanationInflation targeting in monetary policy refers to controlling the money supply to stabilize prices.
#12
15. How does a central bank influence the money supply through the use of reserve requirements?
Increasing reserve requirements decreases the money supply
ExplanationIncreasing reserve requirements by the central bank decreases the money supply.
#13
16. What is the role of the central bank in implementing a contractionary monetary policy?
Raising interest rates
ExplanationThe central bank implements a contractionary monetary policy by raising interest rates.