Monetary Policy Quiz 1

What is one of the tools of monetary policy that involves changes in the minimum reserve requirements by the central bank?

• Minimum reserve requirements

• Open market operations

• Quantitative easing

• Central bank minimum lending rate

What happens to the money supply when the central bank decreases the reserve requirements?

• Excess reserves drop

• Lending ability decreases

• Money supply increases

• Money supply decreases

What is the name of the interest rate that the central bank charges commercial banks when lending to them?

• Minimum lending rate

• Refinancing rate

• Base rate

• Discount rate

Which country first used quantitative easing as an unconventional monetary policy?

• United Kingdom

• United States

• Japan

• European Union

What is the objective of quantitative easing?

• Decrease aggregate demand

• Increase aggregate demand

• Increase interest rates

• Reduce commercial bank reserves

What does the central bank do in quantitative easing to increase commercial bank reserves?

• Create new reserves electronically

• Sell assets to commercial banks

• Buy assets from commercial banks

• Decrease interest rates

What tool of monetary policy involves buying and selling bonds from commercial banks and the public?

• Open market operations

• Quantitative easing

• Minimum reserve requirements

• Central bank minimum lending rate

What happens to the money supply when the central bank increases the minimum lending rate?

• Money supply increases

• Excess reserves drop

• Lending ability decreases

• Money supply decreases

What is the result of commercial banks borrowing from the central bank when the minimum lending rate is decreased?

• Decrease in borrowing

• Increase in reserves

• Increase in interest rates

• Decrease in money supply

What is the main objective of conventional monetary policy when interest rates are low?

• Reduce commercial bank reserves

• Increase borrowing

• Decrease aggregate demand

• Encourage saving