Central Bank Functions Quiz

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What is the impact of price stability on purchasing power?

Increases it

Maintains it at the same level (correct)

Has no effect on it

Erodes it

How does rapidly rising prices affect business decisions?

Ensures long-term stability

Promotes risk-taking

Encourages expansion

Leaves them without a solid basis for decisions (correct)

Why do people demand higher wages in an environment of increasing prices?

To save more money

To decrease their consumption

To encourage saving

To maintain their purchasing power (correct)

What is the role of central banks as fiscal agents to governments?

They keep government deposits and make payments on behalf of governments Signup and view all the answers

In the context of the text, how does monetary policy influence employment?

By reducing the money supply and credit availability Signup and view all the answers

Why is price stability considered a necessary precondition for a healthy economy?

To maintain confidence in economic decisions Signup and view all the answers

What traditional banking operations does the central bank perform for the government?

Deposits and lending Signup and view all the answers

What does it mean when it is mentioned that the central bank is the custodian of government money and wealth?

It holds and safeguards the government's money and assets Signup and view all the answers

In what capacity does the central bank act as an official agent to the government?

Dealing with gold and foreign exchange matters Signup and view all the answers

What role does the central bank play in advising the government on economic matters?

Advising on controlling inflation or deflation Signup and view all the answers

Why might it be more convenient for a central bank to operate as a banker to the state?

Due to economic efficiency and close ties between public finance and monetary affairs Signup and view all the answers

What is the primary function of the central bank in controlling inflationary and deflationary pressures?

Controlling the supply of cash Signup and view all the answers

How does the central bank earn profits from printing notes?

By having a monopoly of note issue Signup and view all the answers

What is the purpose of adopting qualitative methods by the central bank in controlling credit creation?

To stabilize economic activity Signup and view all the answers

How does the central bank control the cost and quantity of credit?

Through open market operations Signup and view all the answers

In what way does the central bank influence and control credit creation by commercial banks?

Through direct intervention in banking operations Signup and view all the answers

What is one of the key powers of the central bank in relation to money supply?

Being the ultimate source of cash Signup and view all the answers

What is the primary role of the central bank as the lender of last resort?

Preventing panic withdrawals from financial institutions Signup and view all the answers

How does the central bank provide assistance to financial institutions in times of stress?

By offering re-discounts and collateral advances Signup and view all the answers

What is the significance of the front door lending method used by the central bank?

It charges a lower interest rate compared to the market rate Signup and view all the answers

How does the central bank's role as lender of last resort impact the credit structure of the economy?

It increases both elasticity and liquidity of credit Signup and view all the answers

What is the aim of providing temporary accommodation through the 'back door' method?

To avoid lending to commercial banks directly Signup and view all the answers

Which of the following is NOT a benefit of the central bank operating as the lender of last resort?

Encouraging excessive risk-taking by commercial banks Signup and view all the answers

What role does the central bank play in relation to commercial banks' cash reserves?

It acts as the custodian of the cash reserves. Signup and view all the answers

How does centralizing cash reserves in the central bank benefit the banking system?

It provides a source of great strength to the banking system. Signup and view all the answers

How do centralized cash reserves facilitate a more elastic credit structure?

By providing a larger base for credit creation. Signup and view all the answers

What advantage does the central bank have in controlling credit creation by commercial banks?

Regulating the amount of cash reserves commercial banks must keep. Signup and view all the answers

In what situations can centralized cash reserves be most effectively utilized?

In times of financial crises or emergencies. Signup and view all the answers

How does the central bank assist commercial banks during financial difficulties?

By providing additional funds on a temporary basis. Signup and view all the answers

Central Bank Functions Quiz

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Questions and Answers

What is the impact of price stability on purchasing power?

How does rapidly rising prices affect business decisions?

Why do people demand higher wages in an environment of increasing prices?

What is the role of central banks as fiscal agents to governments?

In the context of the text, how does monetary policy influence employment?

Why is price stability considered a necessary precondition for a healthy economy?

What traditional banking operations does the central bank perform for the government?

What does it mean when it is mentioned that the central bank is the custodian of government money and wealth?

In what capacity does the central bank act as an official agent to the government?

What role does the central bank play in advising the government on economic matters?

Why might it be more convenient for a central bank to operate as a banker to the state?

What is the primary function of the central bank in controlling inflationary and deflationary pressures?

How does the central bank earn profits from printing notes?

What is the purpose of adopting qualitative methods by the central bank in controlling credit creation?

How does the central bank control the cost and quantity of credit?

In what way does the central bank influence and control credit creation by commercial banks?

What is one of the key powers of the central bank in relation to money supply?

What is the primary role of the central bank as the lender of last resort?

How does the central bank provide assistance to financial institutions in times of stress?

What is the significance of the front door lending method used by the central bank?

How does the central bank's role as lender of last resort impact the credit structure of the economy?

What is the aim of providing temporary accommodation through the 'back door' method?

Which of the following is NOT a benefit of the central bank operating as the lender of last resort?

What role does the central bank play in relation to commercial banks' cash reserves?

How does centralizing cash reserves in the central bank benefit the banking system?

How do centralized cash reserves facilitate a more elastic credit structure?

What advantage does the central bank have in controlling credit creation by commercial banks?

In what situations can centralized cash reserves be most effectively utilized?

How does the central bank assist commercial banks during financial difficulties?

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