4.4 Monetary Policy

• Order the following steps in the process of expansionary monetary policy:

  1️⃣ Increase the money supply

  2️⃣ Lower interest rates

  3️⃣ Stimulate economic activity
• Match the tool of monetary policy with its description:

  Open Market Operations ↔️ Buying and selling government securities to influence money supply and interest rates

  Reserve Requirements ↔️ The amount of cash banks must hold as reserves, affecting their lending capacity

  Discount Rate ↔️ The interest rate charged by the central bank on loans to commercial banks
• Open market operations involve buying and selling government securities to influence the money supply and interest rates.


  True
• Contractionary monetary policy reduces inflation by decreasing demand and raising interest rates.


  True
• What is the primary goal of contractionary monetary policy?

  Reduce inflation
• Expansionary monetary policy lowers interest rates to stimulate economic activity
• Order the tools of monetary policy from most to least direct influence on the money supply:

  1️⃣ Open Market Operations

  2️⃣ Reserve Requirements

  3️⃣ Discount Rate
• Expansionary monetary policy boosts employment by increasing production
• Monetary policy refers to actions taken by a central bank to influence the money supply and interest rates to achieve economic goals like price stability, full employment, and economic growth.Monetary
• Contractionary monetary policy decreases the money supply and raises interest rates to slow down economic activity and control inflation.


  True
• Lowering the discount rate encourages borrowing and increases the money supply
• Order the primary targets of monetary policy according to their importance:

  1️⃣ Price stability

  2️⃣ Full employment

  3️⃣ Economic growth
• Monetary policy has significant impacts on the economy
• Central banks aim to balance the economy by targeting price stability, full employment, and economic growth.

  True
• What is the effect of contractionary monetary policy on economic activity?

  Slows it down
• Open market operations involve buying and selling government securities
• What are the economic goals that monetary policy aims to achieve?

  Price stability, full employment, economic growth
• What dual mandate do central banks aim to achieve through monetary policy actions?

  Price stability and full employment
• What types of monetary policies can central banks implement to achieve their economic goals?

  Expansionary and contractionary
• Expansionary monetary policy stimulates economic growth by increasing the money supply and lowering interest rates
• What is the primary goal of expansionary monetary policy?

  Stimulate economic growth
• Match the economic goal with its definition:

  Price stability ↔️ Low and steady inflation

  Full employment ↔️ Maximizing employment

  Economic growth ↔️ Sustainable economic expansion
• Monetary policy actions are used to achieve the dual mandate of price stability and full employment.


  True
• Central banks must balance multiple targets to ensure a healthy and stable economy.


  True