03

Question 1

deals with management of supply of money

Answer 1

monetary policy

Question 2

determines the liquidity of the money and distribution of the money

Answer 2

monetary policy

Question 3

it provides credit requirements, decides rate of interest, restrict liquidity, try to reduce inflation pressure of the economy

Answer 3

monetary policy

Question 4

money supply (monetary policy)

Answer 4

1. currency board
2. liquidity management

Question 5

inflation (monetary policy)

Answer 5

1. fluctuations
2. instruments of credit control
3. buying and selling of government bonds

Question 6

macro-economic goals (monetary goals)

Answer 6

1. rate of interest
2. employment level
3. foreign exchange rate

Question 7

objectives of monetary policy

Answer 7

1. ensuring price stability
2. to promote economic growth
3. stability of exchange rate
4. macro-economc goals of the economy
5. full employment
6. credit control
7. creation and expansion of financial institutions
8. control of inflation

Question 8

advantages of monetary policy

Answer 8

1. they encourage higher levels of economic activity
2. transparency and predictability
3. it can bring out the possibility of more investments coming in and consumers spending more

Question 9

limitations of monetary policy

Answer 9

1. timing issue
2. liquidity trap

Question 10

recognition lag is a what type of limitations of monetary policy

Answer 10

timing issue

Question 11

implementation lag is a what type of limitations of monetary policy

Answer 11

timing issue

Question 12

this occurs when monetary policy loses its effectiveness in stimulating demand

Answer 12

liquidity trap

Question 13

central banks use __ to regulate economic volatility and promote price stability, including setting explicit inflation targets in advanced economies and changing the money supply through open market operations

Answer 13

monetary policy

Question 14

monetary policy regulates what

Answer 14

economic volatility

Question 15

monetary policy promotes what

Answer 15

1. price stability
2. setting explicit inflation targets in advanced economies
3. changing the money supply

Question 16

how does monetary policy changes the money supply?

Answer 16

through open market operations

Question 17

this policy influences short-term interest rates and economic activity

Answer 17

monetary policy

Question 18

Central bank buys or sells government securities in the open market to control the money supply and interest rates.

Answer 18

open market operations

Question 19

Regulations dictating the minimum amount of reserves commercial banks must hold against their deposits, set by the central bank to influence lending capacity and money supply.

Answer 19

reserve requirements

Question 20

Interest rate at which commercial banks can borrow funds directly from the central bank, often used as a tool to regulate liquidity in the banking system.

Answer 20

discount rate

Question 21

are established by regulatory agencies to ensure the stability and efficiency of the bankning system, protect depositor funds, avoid bank collapses, and maintain the financial sector’s health through capital requirements, liquidity regulations, and lending standards

Answer 21

banking policy

Question 22

banking policy are established by regulatory agencies to ensure what?

Answer 22

1. to ensure the stability and efficiency of teh banking system
2. to protect depositor funds
3. to avoid bank collapses
4. to maintain the financial sector’s health through capital requirements, liquidity regulations, and lending standards

Question 23

refers to the use of the government’s influence in taxation and spending in order to stimulate growth in the economy

Answer 23

fiscal policy

Question 24

what are the fiscal functions?

Answer 24

1. allocate
2. distribute
3. stabilize
4. encourage economic growth
5. maximize employment

Question 25

why is there a need to coordinate monetary and fiscal policies?

Answer 25

1. effective coordination makes it easier for policy makers to achieve their stated policy objectives in an efficient manner
2. it also ensures the commitment of decision makers responsible for these two policy ares to mutually agreed objectives
3. helping to eliminate the problem of time inconsistency in the design of monetary policy

Question 26

coordination can take the form of?

Answer 26

1. ongoing contacts between the fiscal and monetary authorities to decide jointly on aspects relating to policy design and implementation
2. based on a set of rules and procedures which minimizes the need for frequent interaction

Question 27

policy coordination needs to be undertaken at two different levels

Answer 27

1. need to address the constraints that arises in short term regarding the procedures of monetary and fiscal policies
2. policy coordination has to deal with the long term macroeconomic effects that could arise from an unbalanced policy mix