Central Bank Functions and Policies

What are two important jobs of a central bank?

• Regulate commercial banks and conduct monetary policy.

• Print all the money and give loans to people.

• Manage the country's businesses and collect taxes.

• Help people buy houses and cars.

What happens when interest rates are low?

• People borrow less money and spend less.

• People borrow more money and spend more.

• Banks stop lending money.

• The economy slows down.

If a central bank wants to make the economy grow faster, what kind of monetary policy would it use?

• Contractionary monetary policy.

• Expansionary monetary policy.

• Fiscal policy.

• Trade policy.

How can a central bank increase the money available for banks to lend?

• By increasing the reserve requirement.

• By decreasing the reserve requirement.

• By telling banks to stop lending.

• By printing less money.

What happens to the money supply when the discount rate is lowered?

• It decreases.

• It stays the same.

• It increases.

• It becomes unstable.

What does the Federal Reserve do in open market operations to increase the money supply?

• It sells government bonds to banks.

• It buys government bonds from banks.

• It raises the discount rate.

• It prints more money directly for people.

What is Quantitative Easing (Q.E.)?

• When the government raises taxes to slow down the economy.

• When central banks buy longer-term assets like home loans from banks.

• When banks are forced to lend out all their money.

• When people stop borrowing money from banks.

Why did inflation stay low after 2008, even though the money supply was increased?

• Banks loaned out all the extra money quickly.

• People stopped buying things.

• Banks held onto a lot of extra money (excess reserves) instead of lending it.

• The government raised taxes a lot.