4.5.1 Role of Central Banks

• Monetary policy involves setting interest rates and managing the money supply
• What role do central banks play as lenders of last resort?

  Provide emergency loans
• Central banks aim to achieve price stability and full employment.


  True
• Setting interest rates is a tool used by central banks to influence inflation
• Monetary policy controls inflation, stimulates growth, and maximizes employment
• Acting as a lender of last resort prevents bank runs and maintains confidence.


  True
• What is the goal of quantitative easing (QE) when interest rates are already low?

  Increase lending and investment
• What is the likely impact of raising interest rates on inflation?

  Decreases inflation
• What are central banks responsible for managing in a country?

  Monetary policy
• What is one role of central banks in maintaining financial stability?

  Regulating the banking system
• What primary objectives do central banks aim to achieve?

  Price stability and full employment
• How does raising interest rates influence the economy?

  Slows down economic growth
• Lowering reserve requirements allows banks to lend more money.


  True
• Match the monetary policy tool with its effect on the economy:

  Interest Rates ↔️ Influence borrowing and lending

  Open Market Operations ↔️ Increases or decreases money supply

  Reserve Requirements ↔️ Affects lending capacity of banks

  Quantitative Easing ↔️ Lowers long-term interest rates
• The Bank of England is the central bank of the United Kingdom
• What are central banks responsible for managing in a country?

  Monetary policy
• Financial stability is maintained by regulating and supervising the banking system.

  True
• Foreign exchange management involves buying and selling foreign currencies
• Match the key responsibilities of central banks with their descriptions:

  Monetary Policy ↔️ Influences inflation and growth

  Financial Stability ↔️ Regulates the banking system

  Lender of Last Resort ↔️ Provides emergency loans

  Foreign Exchange Management ↔️ Influences exchange rates
• Order the tools used by central banks to influence the economy:

  1️⃣ Interest Rates

  2️⃣ Open Market Operations

  3️⃣ Reserve Requirements

  4️⃣ Quantitative Easing
• Central banks use monetary policy tools to achieve price stability and full employment.


  True
• What are the primary objectives of central banks?

  Price stability and full employment
• Match the monetary policy tools with their descriptions:

  Interest Rates ↔️ Affect borrowing and lending

  Open Market Operations ↔️ Buy and sell government securities

  Reserve Requirements ↔️ Set minimum bank reserves

  Quantitative Easing ↔️ Lowers long-term interest rates
• Buying government securities during open market operations increases the money supply.


  True
• Lowering reserve requirements may increase employment
• Central banks influence inflation, employment, and economic growth by setting interest rates and managing the money supply
• Central banks act as the lender of last resort to prevent financial crises.


  True
• Match the central bank responsibility with its description:

  Monetary Policy ↔️ Sets interest rates and money supply

  Financial Stability ↔️ Regulates the banking system

  Lender of Last Resort ↔️ Provides emergency loans to banks

  Foreign Exchange Management ↔️ Influences exchange rates
• Open market operations involve buying or selling government securities
• What is the primary goal of quantitative easing (QE)?

  Lower long-term interest rates
• How does lowering interest rates affect inflation and economic growth?

  Increases inflation and stimulates growth
• The Bank of England supervises the financial system to prevent crises.


  True
• What does the Prudential Regulation Authority (PRA) oversee?

  Financial institutions