29 Questions
What is the impact of price stability on purchasing power?
Maintains it at the same level
How does rapidly rising prices affect business decisions?
Leaves them without a solid basis for decisions
Why do people demand higher wages in an environment of increasing prices?
To maintain their purchasing power
What is the role of central banks as fiscal agents to governments?
They keep government deposits and make payments on behalf of governments
In the context of the text, how does monetary policy influence employment?
By reducing the money supply and credit availability
Why is price stability considered a necessary precondition for a healthy economy?
To maintain confidence in economic decisions
What traditional banking operations does the central bank perform for the government?
Deposits and lending
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
In what capacity does the central bank act as an official agent to the government?
Dealing with gold and foreign exchange matters
What role does the central bank play in advising the government on economic matters?
Advising on controlling inflation or deflation
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
What is the primary function of the central bank in controlling inflationary and deflationary pressures?
Controlling the supply of cash
How does the central bank earn profits from printing notes?
By having a monopoly of note issue
What is the purpose of adopting qualitative methods by the central bank in controlling credit creation?
To stabilize economic activity
How does the central bank control the cost and quantity of credit?
Through open market operations
In what way does the central bank influence and control credit creation by commercial banks?
Through direct intervention in banking operations
What is one of the key powers of the central bank in relation to money supply?
Being the ultimate source of cash
What is the primary role of the central bank as the lender of last resort?
Preventing panic withdrawals from financial institutions
How does the central bank provide assistance to financial institutions in times of stress?
By offering re-discounts and collateral advances
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
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
What is the aim of providing temporary accommodation through the 'back door' method?
To avoid lending to commercial banks directly
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
What role does the central bank play in relation to commercial banks' cash reserves?
It acts as the custodian of the cash reserves.
How does centralizing cash reserves in the central bank benefit the banking system?
It provides a source of great strength to the banking system.
How do centralized cash reserves facilitate a more elastic credit structure?
By providing a larger base for credit creation.
What advantage does the central bank have in controlling credit creation by commercial banks?
Regulating the amount of cash reserves commercial banks must keep.
In what situations can centralized cash reserves be most effectively utilized?
In times of financial crises or emergencies.
How does the central bank assist commercial banks during financial difficulties?
By providing additional funds on a temporary basis.
Test your knowledge on the functions of a central bank, such as managing government accounts, national debt, gold reserves, and foreign exchange. Learn about the roles and responsibilities of a central bank as the government's official financial agent.
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