29 Questions
What is the primary function of a central bank in the financial system?
Controlling the money supply and supervising financial activity
What is the purpose of a unit of account in the financial system?
To quote prices and record debts
What type of money has intrinsic value?
Commodity money
What is the primary function of a medium of exchange in the financial system?
To facilitate transactions and finalize payments
What is the purpose of a financial system in an economy?
All of the above
What is the primary benefit of using money as a store of value?
It enables the transfer of purchasing power from one day to the next
What is liquidity in the context of assets?
A measure of the ease with which an asset can be turned into a means of payment
What is the main difference between money supply and money stock?
Money supply is exogenous, while money stock is endogenous
What is included in M2, but not in M1?
Savings deposits and small-time deposits
What is the term for the demand for money driven by transactions like trade of goods and services?
Transactions demand for money
What is the price of money?
The interest rate paid on money borrowed
What is the characteristic that makes legal tender money the most liquid asset?
It is widely accepted
What is the primary difference between the nominal interest rate and the real interest rate?
The nominal interest rate is not corrected for inflation, while the real interest rate is corrected for inflation.
What is the term for a sustained increase in the overall price level?
Inflation
What is the purpose of reserve requirements in monetary policy?
To influence interest rates and control the money supply in the economy.
What is the term for prices rising 20 to 50 percent per year for three years or more?
Chronic Inflation
What is the primary effect of a Central Bank selling government bonds on the money supply?
It decreases the money supply
What is the maximum amount that a person, company or entity can borrow?
Credit Ceiling
What is the purpose of a higher discount rate set by the Central Bank?
To decrease the money supply
What is the term for the government's management of the money, credit, and banking system of the economy?
Monetary Policy
What is the effect of an increase in reserve requirements on the money supply?
It decreases the money supply
What is the impact of paying higher interest on reserves on the money supply?
It decreases the money supply
What is the term used to describe the increased provision of financial services to all levels of society?
Financial Deepening
What is the primary limitation of the Central Bank's control over the money supply?
The ability of households to hold deposits
What is a characteristic of Shallow Finance?
A narrow range of financial assets
What is a goal of Financial Development's Deep Finance Strategy?
Mobilizing a larger volume of savings from the domestic economy
What type of financial process reduces reliance on the fiscal process, foreign aid, and inflation?
Financial Development's Deep Finance Strategy
Where do Informal Credit Markets get financed from?
Savings of relatively wealthy individuals
What is one of the benefits of enhancing the accessibility of savings for all types of domestic investors?
Securing a more efficient allocation of investment throughout the economy
This quiz covers the basics of financial systems, central banks, and their roles in controlling money supply and supervising financial activities. It also touches on the functions of financial systems, including providing a medium of exchange and a store of value.
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