Unit 4 - Monetary Policy

What is the relationship between money supply and economic activity?

• Lower money supply leads to higher economic activity
• Higher money supply leads to lower economic activity
• Higher money supply leads to higher economic activity
• Lower money supply leads to lower economic activity

What is the effect of low interest rates on businesses?

• Decrease borrowing
• Increase borrowing
• Decrease investment
• Increase investment

What is the money supply?

• The amount of money a person borrows from a bank
• The total value of money available in an economy at a point of time
• The cost of borrowing money
• The interest earned on money deposited in a bank

What is the role of the monetary authority in changing interest rates?

• Directly change the general interest rate in the economy
• Change the interest rates of borrowing between individuals and businesses
• Change the interest rates of borrowing between the central bank and commercial banks
• Change the interest rates of borrowing between commercial banks and individuals

How can the government control the money supply?

• By earning interest on deposits
• By changing reserve requirements of banks
• By encouraging borrowing and investments
• By selling government bonds

What is the purpose of monetary policy?

• Maintain price stability, low unemployment, and economic growth
• Increase money supply and encourage saving
• Stimulate consumption and decrease investment
• Control money supply and increase interest rates

What does the monetary authority change to influence interest rates?

• Interest rates of borrowing between commercial banks and individuals
• General interest rate in the economy
• Interest rates of borrowing between the central bank and commercial banks
• Interest rates of borrowing between individuals and businesses

What is the impact of higher interest rates on borrowing and investments?

• Higher interest rates encourage borrowing and investments
• Higher interest rates discourage borrowing and investments
• Higher interest rates have no impact on borrowing and investments
• Higher interest rates increase consumption

What is the trade-off between reducing inflation and potential unemployment?

• Increasing inflation leads to higher unemployment
• Reducing inflation leads to lower unemployment
• Increasing inflation leads to lower unemployment
• Reducing inflation leads to higher unemployment

What is the effect of low interest rates on spending and investment?

• More people will spend and businesses will invest more
• More people will spend and businesses will invest less
• More people will save and businesses will invest less
• More people will save and businesses will invest more