Questions and Answers
What action should the central bank take if the GDP of a country hasn't improved in the past three years and they want to increase the amount of money people spend?
Reduce Interest Rates
What type of money did a small country issue during wartime that promised to pay the holder a certain amount in silver?
Representative
Reserve Banks are __________ that help the __________ carry out its duties.
Regional Banks, Central Bank
Classify each action as contractionary or expansionary monetary policy:
Signup and view all the answers
What is a characteristic of money?
Signup and view all the answers
Which characteristic of money allowed a man from a community to trade five cows for a plot of farmland?
Signup and view all the answers
Study Notes
Monetary Policy Adjustments
- Reducing interest rates stimulates economic activity by encouraging spending on goods and services.
- Central banks may adopt such measures to boost GDP during economic stagnation.
Types of Money
- Representative money is backed by a physical commodity, such as silver.
- After wartime, if a population continues to use certificates rather than redeeming them for their commodity value, they exemplify the use of representative money.
Role of Reserve Banks
- Reserve Banks function as regional branches of the Central Bank.
- They assist the Central Bank in implementing monetary policies and maintaining monetary stability.
Monetary Policy Classification
- Contractionary monetary policy involves actions like increasing the discount rate and selling government securities to reduce money supply.
- Expansionary monetary policy includes reducing the required reserve ratio and lowering the federal funds rate to enhance money supply.
Characteristics of Money
- One key characteristic of money is its limited supply, making it valuable and preventing inflation.
Acceptability in Transactions
- The acceptability of money ensures its usability in transactions, exemplified by a community using cattle as money, facilitating trades like exchanging cows for land.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Description
This quiz focuses on concepts related to money and the Federal Reserve, including monetary policy decisions and their impact on the economy. Test your knowledge on how central banks influence spending and financial instruments during specific economic conditions.
