Monetary Policy and Central Banking Midterm Exam

What is the primary goal of monetary policy?

To control inflation and stabilize currency

What is the role of money supply indicators in monetary policy?

To predict future behavior of prices and assess economic activity

What are the tools used by the central bank to control the money supply?

The cost of money and the rate of interest

What is the purpose of increasing money supply according to the text?

To stimulate the economy Signup and view all the answers

What is the purpose of decreasing money supply according to the text?

To control a possible mishap in the economy Signup and view all the answers

What is the role of the Bangko Sentral ng Pilipinas (BSP) in the Philippines?

To manage the money supply and control inflation Signup and view all the answers

What is the primary objective of the Bangko Sentral ng Pilipinas' monetary policy?

To promote price stability Signup and view all the answers

What is the main responsibility of the Bangko Sentral ng Pilipinas as the central bank of the Philippines?

To provide policy directions in the areas of money, banking, and credit Signup and view all the answers

When was the Bangko Sentral ng Pilipinas established?

July 3, 1993 Signup and view all the answers

What are the two extreme scenarios that the BSP tries to prevent through its monetary policy?

High inflation and high unemployment Signup and view all the answers

What is the BSP's role in influencing the economy?

It has the sole ability to influence the amount of money circulating in the economy Signup and view all the answers

What are the other economic goals that the BSP considers in its policy decision-making, aside from price stability?

Promoting financial stability and achieving broad-based, sustainable economic growth Signup and view all the answers

What are the different types of indicators used to measure the money supply?

M1, M2, M3, and M4 Signup and view all the answers

What is included in the calculation of M1, also known as Narrow Money?

Currency in circulation, cash in the hands of the public, peso demand deposits, tourists' checks, and other checkable deposits Signup and view all the answers

What is the difference between M1 and M2?

M2 includes all of M1 plus peso saving deposits, time deposits, and balances in retail money market mutual funds Signup and view all the answers

What is included in the calculation of M3, also known as Broad Money Liabilities?

M2 plus money substitutes such as promissory notes and commercial papers Signup and view all the answers

What does a low velocity of M1 and M2 money stock indicate?

That there is a lot of money in the hands of consumers and it is not changing hands frequently Signup and view all the answers

What is included in the calculation of M4, also known as Liquidity Money?

M3 plus transferable deposits, treasury bills, and deposits held in foreign currency Signup and view all the answers

What is the purpose of the rediscounting facility provided by the BSP?

To help banks meet temporary liquidity needs by refinancing the loans they extend to their clients Signup and view all the answers

What are the two types of rediscounting facilities offered by the BSP?

Peso rediscounting facility and the Exporter’s dollar and Yen Rediscount Facility Signup and view all the answers

What is the main reason why banks need to maintain a certain balance of money, known as reserves?

To meet temporary liquidity needs and ensure financial stability Signup and view all the answers

What are the two forms of reserve requirements mentioned in the text?

Regular or Statutory Reserves and Liquidity Reserve Signup and view all the answers

What is the impact of changes in reserve requirements on the monetary supply?

Changes in reserve requirements will result in significant changes in the monetary supply Signup and view all the answers

What are the indicators used by the BSP to measure the money supply?

M1, M2, M3, and M4 Signup and view all the answers

What is the key difference between outright transactions and repurchase or reverse repurchase transactions?

There is no clear intent by the government to reverse the action of selling/buying monetary securities. Signup and view all the answers

What happens when the BSP buys securities?

It pays for them by directly crediting its counterparty's Demand Deposit Account with the BSP. Signup and view all the answers

What is a foreign exchange swap?

The actual exchange of two currencies at a specific date, at a rate agreed upon on the deal date, and the reverse exchange of the currencies at a farther date in the future, also at an interest rate agreed on deal date. Signup and view all the answers

What was introduced by the Bangko Sentral in 1998 to expand its liquidity management?

The acceptance of fixed-term deposits. Signup and view all the answers

What is the purpose of the Special Deposits Account (SDA)?

To hold fixed-term deposits by banks and institutions affiliated with the BSP. Signup and view all the answers

What is the purpose of the Bangko Sentral's standing facilities?

To increase the volume of credit in the financial system. Signup and view all the answers