Monetary Policy

In most countries, who usually sets the base interest rate (the economy's benchmark interest rate)?

• The Central Bank

• Commercial Banks

• Savers and borrowers

• Savers and lenders

Which of the following is not a function of a central bank?

• The sole issuer of money in the economy

• Oversees government spending and taxation revenues

• Lender of last resort

• Manages the implementation of monetary policy

Which statement below is correct?

• Higher interest rates create incentives for firms to invest

• Higher demand for money tends to cause lower interest rates

• Lower interest rates create incentives for firms to invest

• Higher supply of money tends to cause higher interest rates

When the money supply rises , interest rates _______. When contractionary monetary policy is used, interest rates_______

• Rise, fall

• Fall, rise

• Rise, rise

• Fall, fall

Which of the following does not directly influence the level of money supply in the economy?

• Unemployment

• Inflation

• Nominal interest rates

• Real growth rates

Which of the following is not directly affected by higher interest rates?

• Taxation

• Investment

• Consumption

• Net Exports

Which of the following is an example of expansionary monetary policy?

• Government expenditure increasing during a recession as more people claim unemployment benefits

• Government expenditure increases in response to falling AD in the economy

• Marginal tax rates are reduced

• Money supply is increased

Which of the following is not a tool that can be used by a central bank to change the money supply?

• Increasing the nominal interest rate

• Open market operations

• Changing the reserve ratio

• Printing more money

What is the interest rate the central bank charges commercial banks called?

• Reserve ratio rate

• Discount rate

• Nominal interest rate

• Real interest rate

Which of the following is not an example of expansionary monetary policy?

• The central bank buys bonds from commercial banks

• Reductions in tax rates

• Lowering the discount rate

• Reducing the reserve ratio