G12Macro: Basics of banking & money supply

What is the relationship between inflation and money supply?

• Inflation decreases when money supply increases.

• An increase in money supply can lead to inflation.

• A decrease in money supply always leads to inflation.

• Money supply has no effect on inflation rates.

How does an increase in money supply typically affect inflation?

• An increase in money supply typically leads to higher inflation.

• An increase in money supply leads to deflation.

• An increase in money supply reduces inflation.

• An increase in money supply has no effect on inflation.

Choose all that are correct:

What are the primary functions of a central bank?

• Managing monetary policy.

• Issuing currency.

• Controlling stock market prices.

• Providing loans to private individuals.

• Maintaining financial stability.

Choose all that are correct?

How does a central bank control the money supply?

• Using open market operations.

• By increasing taxes on businesses.

• Adjusting reserve requirements.

• By controlling foreign exchange rates.

• Adjusting the interest rate.

What are the different measures of money supply?

• Savings, Checking, Investment

• Currency, Bonds, Stocks

• M1, M2...

• None of the above.

Which only includes physical currency and demand deposits? M1 or M2?

True or false:

Banks can and do borrow from each other instantaneously.

• True

• False

What happens to the money supply when interest rates are lowered?

• The money supply decreases.

• The money supply fluctuates unpredictably.

• The money supply increases.

• The money supply remains unchanged.

What is the impact of high interest rates on asset prices?

• High interest rates stabilize asset prices.

• High interest rates have no effect on asset prices.

• High interest rates typically increase asset prices.

• High interest rates generally lead to a decrease in asset prices.

What key term refers to 'how easily an asset can be turned into cash'?