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WorksheetsMonetary Policy
Total questions: 25
Worksheet time: 13mins
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
Which of the following has a negative impact on real national output?
Expansionary fiscal policy
Lower interest rates
Higher interest rates
Loose monetary policy
What is the term used to describe the percentage of total deposits that banks cannot lend, but must keep for capital adequacy?
Reserve ratio rate
Discount rate
Nominal interest rate
Real interest rate
Expansionary monetary policy shifts the supply of money curve to the _____ and the AD curve to the ______
Left, left
Left, right
Right, left
Right, right
Which of the following is a limitation of monetary policy, with regards to boosting economic growth during a recession?
It is quicker to implement than fiscal policy
The risk of crowding out is eliminated
Investors may be reluctant to borrow due to low confidence
Monetary policy can be fine tuned to the economy's requirements
Which of the following is not a disadvantage of using monetary policy as a tool to influence the level of AD?
Investors may be reluctant to borrow during a recession
The central bank is operated independently
Time lags may occur
It cannot remedy cost push inflation
What is contractionary monetary policy used to prevent?
Income inequalities
Negative economic growth
Unemployment
Inflationary pressures
Which statement does not apply to the use of easy monetary policy?
It helps to constrain AD in order to combat inflationary pressures
It makes borrowing money for consumption and investment purposes more attractive
It is used to close a recessionary or deflationary gap
It shifts the AD curve outwards
Which fo the following is most effective in dealing with an inflationary gap?
Expansionary monetary policy
Contractionary monetary policy
Currency devaluation
Lower interest rates
Which of the following can work as automatic stabilisers?
progressive taxes and unemployment benefits
regressive taxes and unemployment benefits
progressive taxes and subsidies
unemployment benefits and subsidies
Rather than focus on the objectives of low inflation and low unemployment, some central banks pursue an alternative policy that involves
avoiding crowding out
setting an inflation target
achieving a balanced budget
reducing the level of public debt
In the money market, if the quantity of money demanded is greater than the quantity of money supplied, the interest rate will
rise
fall
remain unchanged
rise or fall depending on the amount of excess demand for money
Contractionary monetary and fiscal policies may be called for when the economy is
in a deflationary gap
in an inflationary gap
in full employment equilibrium
at a trough in its business cycle
Which of the following can be a weakness of monetary policy?
its lack of political constraints
its possible performance in a deep recession
its incremental adjustment of interest rates
its effects on budget deficits and debt
Which of the following is not a role of the central bank?
banker to the business sector
banker to commercial banks
regulator of commercial banks
conduct monetary policy
The minimum reserve requirement is
the minimum amount of money commercial banks require customers to deposit to
open an account
the minimum amount of deposited money the central bank is required to keep in reserves
the minimum amount of deposited money that commercial banks must keep in reserves
the minimum amount of money the central bank keeps in reserves before lending to
commercial banks
