Central Banking and Monetary Policy: Master the Fundamentals

Question 1

Forward guidance refers to:

Accepted Answer

Statements by central banks about future monetary policy actions

Answer

Guidelines provided to banks on lending practices

Answer

Forecasts about inflation by the government

Answer

Debt management strategies

Question 2

Monetary policy can impact the value of a country's:

Accepted Answer

Currency

Answer

Stocks

Answer

Commodities

Answer

Real estate

Question 3

Which of the following is NOT an expected effect of expansionary monetary policy?

Accepted Answer

Lower inflation

Answer

Increased economic growth

Answer

Reduced unemployment

Answer

Higher investment

Question 4

Which metric is commonly used to measure inflation?

Accepted Answer

Consumer Price Index (CPI)

Answer

Producer Price Index (PPI)

Answer

Gross Domestic Product (GDP)

Answer

Unemployment Rate

Question 5

Which of the following is NOT a potential consequence of significant inflation?

Accepted Answer

Higher economic growth

Answer

Decreased purchasing power

Answer

Increased borrowing costs

Answer

Currency depreciation

Question 6

What is the primary distinction between monetary policy and fiscal policy?

Accepted Answer

Monetary policy targets interest rates, while fiscal policy focuses on government spending and taxation.

Answer

Fiscal policy targets interest rates, while monetary policy focuses on government spending and taxation.

Answer

Monetary policy is implemented by central banks, while fiscal policy is implemented by governments.

Answer

Fiscal policy is implemented by central banks, while monetary policy is implemented by governments.

Question 7

How does expansionary monetary policy generally affect the prices of financial assets?

Accepted Answer

Raises the prices of financial assets, such as stocks and bonds

Answer

Lowers the prices of financial assets

Answer

Raises only the prices of stocks

Answer

Raises only the prices of bonds

Question 8

What is the primary monetary policy tool used by the Bank of England to influence interest rates?

Accepted Answer

Open market operations

Answer

Quantitative easing

Answer

Reserve requirements

Answer

Fiscal policy

Question 9

How does an increase in the money supply typically affect inflation?

Accepted Answer

Increases inflation, all else being equal

Answer

Decreases inflation, all else being equal

Answer

Has no effect on inflation

Answer

Cannot be determined

Question 10

Which of the following is an example of a quantitative easing measure?

Accepted Answer

Buying government bonds to increase the money supply

Answer

Selling government bonds to reduce the money supply

Answer

Raising interest rates to curb inflation

Answer

Reducing reserve requirements for banks

Question 11

What is the role of the Monetary Policy Committee (MPC) in the United Kingdom?

Accepted Answer

Sets interest rates and manages monetary policy

Answer

Advises the Bank of England on economic policy

Answer

Regulates the financial sector

Answer

Provides financial assistance to banks

Question 12

Which of the following is NOT a primary responsibility of a central bank?

Accepted Answer

Providing direct loans to individuals and businesses

Answer

Managing inflation

Answer

Regulating the financial system

Answer

Setting interest rates

Question 13

Which monetary policy tool is used to increase the money supply?

Accepted Answer

Open market purchases

Answer

Increased reserve requirements

Answer

Higher discount rate

Answer

Quantitative tightening

Question 14

What is the term for the ongoing rise in the general level of prices?

Accepted Answer

Inflation

Answer

Deflation

Answer

Hyperinflation

Answer

Disinflation

Question 15

Which of the following is NOT a potential negative consequence of high inflation?

Accepted Answer

Increased consumer spending

Answer

Reduced purchasing power

Answer

Increased economic uncertainty

Answer

Lowered real interest rates

Question 16

Which of the following factors is typically NOT considered by a central bank when setting interest rates?

Accepted Answer

Political stability

Answer

Inflation

Answer

Economic growth

Answer

Labor market conditions

Question 17

What is the name of the central bank of the United Kingdom?

Accepted Answer

Bank of England

Answer

Federal Reserve System

Answer

European Central Bank

Answer

Bank of Japan

Question 18

What is quantitative easing?

Accepted Answer

A monetary policy tool involving large-scale purchases of assets by the central bank

Answer

A policy of increasing interest rates

Answer

A policy of selling assets

Question 19

Which of the following best describes the relationship between inflation and interest rates?

Accepted Answer

An increase in inflation typically leads to an increase in interest rates

Answer

Interest rates have no effect on inflation

Answer

An increase in inflation typically leads to a decrease in interest rates

Question 20

What is the primary role of fiscal policy in managing the economy?

Accepted Answer

Influencing aggregate demand through government spending and taxation

Answer

Regulating the banking system

Answer

Setting interest rates

Question 21

How might a central bank influence the foreign exchange rate of its currency?

Accepted Answer

By intervening in the foreign exchange market through buying or selling foreign currencies

Answer

By implementing fiscal policy

Answer

By adjusting the bank rate

Answer

By printing more money

Question 22

What does the Phillips curve primarily illustrate?

Accepted Answer

The relationship between unemployment and inflation

Answer

The relationship between economic growth and interest rates

Answer

The relationship between government spending and unemployment

Answer

The relationship between inflation and exchange rate

Question 23

What is the generally accepted target for inflation rate in many developed economies?

Accepted Answer

2-3%

Answer

0%

Answer

10%

Answer

5%

Question 24

Pursuing expansionary monetary policy may carry which of the following potential risks?

Accepted Answer

Asset price bubbles and increased inflation

Answer

Fiscal imbalances

Answer

Exchange rate volatility

Answer

Deflation