2.4.3 Central banks and monetary policy

• Central banks maintain financial stability by overseeing payment systems.

  True
• The benchmark/policy rate set by central banks affects borrowing and lending costs.


  True
• Central banks help prevent financial instability by providing liquidity
• Match the goal of monetary policy with its importance:

  Price Stability ↔️ Ensures consumer confidence

  Full Employment ↔️ Boosts economic output

  Economic Growth ↔️ Improves overall welfare
• Reserve requirements refer to the percentage of deposits that commercial banks must hold in reserve
• The discount rate is the interest rate at which commercial banks can borrow directly from the central bank
• Order the steps of how open market operations influence the money supply:

  1️⃣ Central bank buys government securities

  2️⃣ Commercial banks' reserves increase

  3️⃣ Banks lend out excess reserves

  4️⃣ Money supply expands
• Central banks are the national monetary authorities
• Central banks use monetary policy tools to influence economic conditions.


  True
• Order the goals of monetary policy by their primary focus:

  1️⃣ Price Stability

  2️⃣ Full Employment

  3️⃣ Economic Growth
• How does lowering reserve requirements affect the economy?

  Increases funds for lending
• What is the discount rate in monetary policy?

  Interest rate for bank borrowing
• What is one reason monetary policy effects take time to materialize?

  Time lags in the economy
• Central banks are the national monetary authorities responsible for managing a country's monetary policy
• Match the function of central banks with its description:

  Money Supply Control ↔️ Influence inflation and growth

  Interest Rate Setting ↔️ Affect borrowing costs

  Financial Stability Maintenance ↔️ Regulate banks and provide liquidity
• The goals of monetary policy are to achieve price stability, full employment, and economic growth
• Price stability ensures consumer confidence and purchasing power.


  True
• Open market operations involve buying or selling government securities to influence the money supply.


  True
• Lowering reserve requirements increases funds available for lending and stimulates the economy.

  True
• What is the benchmark/policy rate used for?

  Borrowing and lending costs
• Match the function of central banks with its description:

  Money Supply Control ↔️ Adjust reserve requirements

  Interest Rate Setting ↔️ Sets benchmark rate

  Financial Stability Maintenance ↔️ Regulates banks
• What are the three main goals of monetary policy?

  Price stability, full employment, economic growth
• Central banks use tools like reserve requirements
• Open market operations involve buying or selling government securities.

  True
• Tightening monetary policy decreases inflation
• The inflation-unemployment trade-off is a key challenge for central banks.


  True