10 Questions
What is the primary responsibility of a central bank?
Implementing monetary policy, managing the currency, and controlling the money supply
What is one of the macroeconomic objectives of a central bank?
Price stability and economic growth
What is the effect of increasing official interest rates by a central bank?
To control inflation
What is the purpose of a central bank's role in regulating money in circulation?
To inject liquidity into the economy
What is another responsibility of a central bank regarding currencies?
Ensuring stable exchange rates and owning official reserves
What is the purpose of a central bank's oversight of the inter-bank market?
To ensure respect for financial laws and proper functioning of national payment systems
What is an expansionary monetary policy likely to do to interest rates?
Decrease them
What is a potential consequence of a central bank's inability to lower interest rates further?
A liquidity trap
What is a challenge facing central banks in setting monetary policy?
Uncertainty
How does a central bank manage the money supply to combat deflation?
By increasing the money supply through tools like quantitative easing
Test your understanding of the limitations of monetary policy, including the uncertainty of economic reactions to expansionary and contractionary policies. Learn how central banks' attempts to manipulate the money supply can be affected by various factors.
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