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Goals of Monetary Policy and Class Activities

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Goals of Monetary Policy and Class Activities

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Questions and Answers

Which tool is described as having an immediate effect on the entire system?

Open market operation

Discount rate (correct)

Expansionary monetary policy

Reserve requirement

What is the main weakness of the reserve requirement tool?

It may cause immediate liquidity problems for banks with low excess reserves (correct)

It has a slow action for massive effects

It is rarely used

It is not very effective if conducted alone

Which tool is described as being suitable to fine-tune market operations and having complete control by BNM?

Open market operation (correct)

Discount rate

Reserve requirement

Contractionary monetary policy

What is the primary goal of achieving high employment in the economy?

To ensure all labor resources are utilized efficiently Signup and view all the answers

What is the main merit of the discount rate tool?

Effective solution for cash flow problems Signup and view all the answers

Why is it important to achieve price stability in the economy?

Rising price levels create economic uncertainty and hamper growth Signup and view all the answers

Which tool is described as being powerful to fine-tune credit & market conditions but may be too powerful?

Reserve requirement Signup and view all the answers

What does price stability refer to in the context of the economy?

A situation of no inflation or deflation Signup and view all the answers

Why do all countries aim to achieve high employment?

To minimize the losses associated with unemployment Signup and view all the answers

What does high employment in the economy indicate?

All labor resources have jobs and are utilized Signup and view all the answers

What is the main problem associated with inflation according to the text?

Uncertainty about future prices complicating decision making Signup and view all the answers

How does inflation affect creditors, according to the text?

They lose because the real value of the money will be less Signup and view all the answers

Why is interest-rate stability desirable according to the text?

It creates uncertainty in the economy Signup and view all the answers

What is the objective of converting short-term loans to long-term loans according to the text?

To enable commercial banks to create multiple credits Signup and view all the answers

What is the main goal of monetary policy mentioned in the text?

Achieving higher economic growth and interest-rate stability Signup and view all the answers