#1
What is the money multiplier?
The ratio of the money supply to the monetary base
ExplanationMeasures the impact of changes in the monetary base on the money supply
#2
Which of the following is NOT a component of the monetary base?
Bank loans
ExplanationBank loans are not included in the monetary base
#3
What is the role of the Federal Reserve in the United States?
To conduct monetary policy and regulate banks
ExplanationResponsible for managing the nation's money supply and supervising banks
#4
What does the term 'monetary policy' refer to?
Regulating the money supply and interest rates
ExplanationInvolves controlling money availability and influencing borrowing costs
#5
How does an increase in reserve requirements affect the money supply?
It decreases the money supply
ExplanationIncreasing reserve requirements reduces the amount of money banks can lend
#6
What is the primary tool used by central banks to control the money supply?
Open market operations
ExplanationInvolves buying or selling securities to influence money supply
#7
What happens to the money supply when the central bank conducts open market purchases?
It increases
ExplanationBuying securities injects money into the economy, increasing the money supply
#8
Which of the following is a tool of expansionary monetary policy?
Decreasing the discount rate
ExplanationLowering the discount rate encourages borrowing and spending
#9
What is the main goal of contractionary monetary policy?
To reduce inflation
ExplanationAims to decrease economic activity and curb inflationary pressures
#10
What is the effect of an increase in the money supply on interest rates, ceteris paribus?
Interest rates decrease
ExplanationGreater money supply reduces demand for borrowing, lowering interest rates
#11
What is the equation for the simple money multiplier?
1 + reserve ratio
ExplanationExpresses the relationship between reserve ratio and money multiplier
#12
Which of the following would likely result from an increase in the discount rate by the central bank?
Decreased borrowing by banks
ExplanationHigher discount rate discourages banks from borrowing
#13
What is the significance of the money multiplier in the context of monetary policy?
It measures the impact of changes in the monetary base on the money supply
ExplanationQuantifies the relationship between base and broad money supply
#14
What is the relationship between the money multiplier and the reserve ratio?
They have an inverse relationship
ExplanationAs reserve ratio increases, the money multiplier decreases
#15
What does the term 'quantitative easing' refer to in the context of monetary policy?
An unconventional monetary policy tool involving large-scale asset purchases
ExplanationInvolves massive purchase of financial assets to boost money supply
#16
Which of the following best describes the transmission mechanism of monetary policy?
The process by which changes in monetary policy affect economic variables such as interest rates and aggregate demand
ExplanationDescribes how policy decisions impact economic factors