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- Subject
- Money, Interest Rates And Outputeconomics-mcqs › money-interest-rates-and-output
- Published
- 31 May 2019
- Last updated
- 28 May 2026
Explanation
When the central bank purchases a government bond, it injects money into the economy. The individual deposits this money into a bank, which can then lend out a portion based on its reserve ratio. This process leads to an increase in the money supply by an amount influenced by the bank’s reserve requirement. Therefore, the money supply rises by an amount that depends on the reserve ratio.
More Money, Interest Rates And Output MCQs
Practice related questions from the same subject.
- 1.How does a decrease in interest rates affect the monetary base, consumer credit availability, and the cost of consumer credit?
- 2.Which variable do central banks typically set directly, and which variable adjusts as a consequence?
- 3.What is it called when the central bank purchases financial assets in the open market to expand the monetary base?
- 4.M4 is considered a __________ monetary aggregate and encompasses deposits held at both __________ and __________?
- 5.Assuming all other factors remain constant, what happens to the quantity of real money holdings when interest rates increase?
- 6.Holding money aside to be prepared for unexpected opportunities is an example of which type of money demand?
- 7.What happens to the money multiplier when banks and private businesses choose to keep less cash on hand?
- 8.How do banks effectively generate new money?
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