#1
Which international organization is responsible for fostering monetary cooperation and exchange rate stability?
International Monetary Fund (IMF)
ExplanationThe IMF promotes global financial stability and facilitates economic cooperation.
#2
Which of the following is a function of money according to economic theory?
Storing value
ExplanationMoney serves as a medium of exchange, unit of account, and store of value.
#3
What is the term for a situation where there is a prolonged decline in the general price level of goods and services?
Deflation
ExplanationDeflation is characterized by falling prices, often leading to economic challenges.
#4
Which economic concept refers to the increase in the general price level of goods and services over time?
Inflation
ExplanationInflation erodes purchasing power and affects economic stability.
#5
What is the term for the interest rate at which the central bank lends money to commercial banks?
Discount rate
ExplanationThe discount rate is the rate at which central banks lend to commercial banks.
#6
What is the primary function of central banks in the monetary system?
Controlling inflation and interest rates
ExplanationCentral banks regulate the economy by managing inflation and interest rates.
#7
Which monetary policy tool involves adjusting the interest rate at which banks borrow from the central bank?
Discount rate
ExplanationDiscount rate adjustments regulate bank borrowing and influence economic activity.
#8
What is the term for the interest rate at which banks lend to each other in the short term?
Federal funds rate
ExplanationFederal funds rate reflects the cost of short-term borrowing between banks.
#9
What does the term 'M1' represent in the context of money supply?
Physical currency and coins in circulation
ExplanationM1 includes cash and demand deposits available for immediate spending.
#10
What is the term for the central bank's buying and selling of government securities to control the money supply?
Open market operations
ExplanationOpen market operations influence the money supply by trading government securities.
#11
What is the Quantity Theory of Money primarily focused on explaining?
The relationship between money supply and inflation
ExplanationIt describes the impact of changes in money supply on inflation levels.
#12
In the context of monetary policy, what does the term 'Lender of Last Resort' refer to?
Central banks providing funds to financial institutions in crisis
ExplanationCentral banks act as lenders to stabilize financial systems during crises.
#13
In a fractional reserve banking system, what percentage of deposits are banks typically required to hold as reserves?
10%
ExplanationBanks usually hold about 10% of deposits as reserves to meet withdrawal demands.
#14
Which type of inflation occurs due to an increase in production costs and a decrease in aggregate supply?
Cost-push inflation
ExplanationCost-push inflation results from supply constraints leading to higher production costs.
#15
In the context of central banking, what is the primary objective of the Federal Reserve in the United States?
All of the above
ExplanationThe Federal Reserve aims to achieve stable prices, maximum employment, and moderate long-term interest rates.