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Monetary Policy of Central Bank

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Questions and Answers

What is the primary objective of the BSP's monetary policy?

To regulate the supply of money without regard to inflation

To promote price stability conducive to balanced economic growth (correct)

To promote economic growth at all costs

To ensure maximum employment year-round

Which monetary policy instrument does the BSP primarily use to influence the economy?

Government spending programs

Foreign exchange interventions

Taxation policy adjustments

Reverse repurchase (RRP) or borrowing rate (correct)

What does contractionary monetary policy aim to achieve?

Enhance liquidity in the banking system

Stabilize employment rates irrespective of inflation

Increase spending through lower interest rates

Slow down the economy when inflation exceeds target (correct)

Which of the following is NOT a key objective of monetary policy?

Influencing foreign exchange rates Signup and view all the answers

How does the BSP implement changes in the economy during an expansionary monetary policy?

Lowering interest rates to encourage borrowing Signup and view all the answers

What effect do reserve requirements have on a bank's ability to lend?

Decreasing reserve requirements restricts bank lending Signup and view all the answers

Which framework did the BSP adopt in January 2002 for its monetary policy?

Inflation Targeting Framework Signup and view all the answers

Interest rate adjustments by the central bank primarily influence which of the following?

Borrowing costs and consumer spending Signup and view all the answers

Study Notes

Monetary Policy Overview

Central bank measures regulate the money supply in the economy.
Aims to stabilize price levels through control over timing, costs, and availability of money and credit.
Key objectives include price stability, full employment, and economic growth.

Inflation Targeting Framework

The primary goal of BSP's monetary policy is to ensure price stability for balanced economic growth.
Implemented the inflation targeting framework in January 2002, according to Republic Act 7653.
Utilizes various monetary policy instruments based on inflation outlook assessments.

Monetary Policy Instruments

Interest Rates: Adjusting these can influence borrowing costs and consumer spending.
Open Market Operations: Involves buying or selling government securities to affect money supply.
Reserve Requirements: Altering the amount banks must hold in reserve influences their lending activity.

Types of Monetary Policies

Contractionary Monetary Policy

Implemented when inflation forecast exceeds the target, aiming to reduce money supply and control inflation.

Expansionary Monetary Policy

Used when the BSP identifies low inflation forecasts, aimed at increasing money supply to stimulate the economy.

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Description

This quiz covers the concepts of monetary policy, focusing on inflation targeting and the actions taken by central banks to regulate money supply. It is designed for a deeper understanding of economic stabilization techniques and their implications. Ideal for students studying finance or economics.