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Questions and Answers
What action does the central bank take during a recession to encourage an expansion in lending and deposits?
What action does the central bank take during a recession to encourage an expansion in lending and deposits?
- Increase the required reserve ratio
- Raise the bank rate
- Decrease the required reserve ratio (correct)
- Decrease the bank rate
What is the bank rate or discount rate?
What is the bank rate or discount rate?
- Rate at which commercial banks lend to each other
- Interest rate charged by the central bank on loans to commercial banks (correct)
- Rate at which individuals borrow from commercial banks
- Interest rate on loans from commercial banks to the central bank
How does an increase in the bank rate or discount rate affect borrowing costs?
How does an increase in the bank rate or discount rate affect borrowing costs?
- Borrowing costs remain unchanged
- Borrowing costs increase (correct)
- Borrowing costs become zero
- Borrowing costs decrease
During inflation, what action does the central bank take with regard to the interest rate?
During inflation, what action does the central bank take with regard to the interest rate?
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How does reducing the bank rate during a recession impact credit creation?
How does reducing the bank rate during a recession impact credit creation?
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In what situation would a central bank increase its lending rate?
In what situation would a central bank increase its lending rate?
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How does an increase in the required reserve ratio impact lending by commercial banks?
How does an increase in the required reserve ratio impact lending by commercial banks?
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