Monetary Policy and Money Supply Quiz

What effect do increases in the money supply have on short-term interest rates?

What is one of the functions of the BSP as mentioned in the text?

In the long run, what is the likely outcome of an abundance of money supply?

What role does the BSP play for government agencies according to the text?

Why do banks need to maintain reserves with the BSP as per the text?

When the BSP sells securities, what is the impact on money supply according to the text?

What is one of the purposes of maintaining international currency reserves by central banks as discussed in the text?

What does the rediscounting function of the central bank involve?

How does the central bank act as a clearing house?

What is the main goal of expansionary monetary policy?

What is one of the methods the central bank can use to control credit?

Which action by the central bank would be part of expansionary monetary policy?

How does monetary policy impact investment and consumption?

What does BSP stand for in the context of this text?

Which objective is NOT listed as an objective of the BSP in the text?

BSP: Central bank of the Philippines, plays a crucial role in coordinating with the government and private sectors in nation building
Functions of BSP:
- Bank of issue: Monopoly of printing money bills and minting coins
- Government’s banker, agent, and adviser: Handles banking accounts of government agencies, provides foreign exchange for imports and loans
- Custodian of cash reserves: Regulates banks to maintain adequate reserves to ensure cash availability
- Custodian of international currency reserves: Maintains reserves as a guarantee for currency issuance and deposit liabilities
- Bank of rediscount and lender of last resort: Lends money to banks in distress
- Bank of central clearance and settlement: Acts as a clearing house for inter-bank claims
- Controller of credit: Controls money supply by controlling credit
Monetary Policy: BSP role in managing money supply to individuals and businesses
Expansionary Monetary Policy: Increases money supply
- Central bank can buy securities, lower discount rate, or lower reserve requirements
Contractionary Monetary Policy: Decreases money supply
- Central bank can sell securities, raise discount rate, or raise reserve requirements
Objectives of the BSP:
- Promote balanced and sustainable economic growth
- Maintain price stability
- Maintain monetary stability and peso convertibility
- Maintain stability of financial system
- Provide payment and financial services
- Supervise and regulate depository institutions
Incorrect statements:
- Short-term interest rates are pushed up by increases in the money supply (False)
- Abundance of money supply leads to decrease in prices (False)
- BSP can lower interest rates to stimulate investment and consumption in the short run (True, but not the only way)
- Central bank increases money supply by selling securities (False)
- Increasing reserve requirements reduces the amount available for banks to lend to borrowers (True)

Test your knowledge on expansionary and contractionary monetary policies, money supply, and the role of central banks. Explore how different policies affect the level of the money supply in a country.