Central Bank Functions Quiz

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7 Questions

What action does the central bank take during a recession to encourage an expansion in lending and deposits?

Decrease the required reserve ratio

What is the bank rate or discount rate?

Interest rate charged by the central bank on loans to commercial banks

How does an increase in the bank rate or discount rate affect borrowing costs?

Borrowing costs increase

During inflation, what action does the central bank take with regard to the interest rate?

Increases the interest rate

How does reducing the bank rate during a recession impact credit creation?

Increases credit creation

In what situation would a central bank increase its lending rate?

During inflation

How does an increase in the required reserve ratio impact lending by commercial banks?

Decreases lending

Test your knowledge on the functions of a central bank such as managing a country's foreign exchange reserves, implementing exchange rate systems, and acting as a banker to commercial banks. This quiz covers key concepts related to the central bank and its monetary policies.

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