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Which variable do central banks typically set directly, and which variable adjusts as a consequence?

Money, Interest Rates And Output MCQs for PPSC, FPSC, NTS, and Pakistan government job tests. Select an option below, then read the explanation.

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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

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Explanation

Central banks usually target the interest rate and allow the money supply to adjust to maintain equilibrium. Therefore, they fix the interest rate and accept the resulting equilibrium money supply.

More Money, Interest Rates And Output MCQs

Practice related questions from the same subject.

  1. 1.How does a decrease in interest rates affect the monetary base, consumer credit availability, and the cost of consumer credit?
  2. 2.What is it called when the central bank purchases financial assets in the open market to expand the monetary base?
  3. 3.M4 is considered a __________ monetary aggregate and encompasses deposits held at both __________ and __________?
  4. 4.Assuming all other factors remain constant, what happens to the quantity of real money holdings when interest rates increase?
  5. 5.Holding money aside to be prepared for unexpected opportunities is an example of which type of money demand?
  6. 6.What happens to the money multiplier when banks and private businesses choose to keep less cash on hand?
  7. 7.How do banks effectively generate new money?
  8. 8.What are the three primary functions of money?
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