Monetary Policy- Macro 4.6

The video explains monetary policy using a puppet, covering the money market graph, monetary base, and money supply. It details how the central bank influences the economy through reserve requirements, discount rates, and open market operations. The video emphasizes the importance of these tools in managing interest rates and economic activity.

What happens to investment and spending when the money supply increases?

• They remain unchanged.

• They increase.

• They fluctuate randomly.

• They decrease.

What is the money multiplier if the reserve requirement is 20%?

• Twenty

• Ten

• Five

• Two

How can the central bank influence the money supply through reserve requirements?

• By changing the interest rates directly.

• By setting a fixed money supply.

• By altering the percentage of reserves banks must hold.

• By printing more money.

What is the effect of lowering the discount rate on banks?

• It increases the reserve requirement.

• It has no effect on borrowing costs.

• It makes borrowing from the central bank cheaper.

• It makes borrowing from the central bank more expensive.

Which tool is considered the most important for changing the money supply?

• Quantitative easing

• Changing reserve requirements

• Adjusting the discount rate

• Open market operations

What happens when the central bank buys government bonds?

• The money supply decreases.

• The money supply remains the same.

• The money supply becomes unpredictable.

• The money supply increases.

What is quantitative easing?

• A method of increasing the money supply by buying assets other than bonds.

• A method of controlling inflation directly.

• A method of decreasing the money supply by selling bonds.

• A method of setting fixed interest rates.