QUIZ: Monetary Policy

Considering the primary objective of central banks is price stability, which of the following would be an adverse consequence of high inflation?

If a country is pegging its currency to the U.S. dollar and sees its own currency appreciating, which action would the country most likely take to maintain the peg?

Which of the following scenarios would be most indicative of a central bank’s attempt to control inflation using its monetary policy tools?

Which of the following best represents the term ‘quantitative easing’ undertaken by central banks?

The central bank of a developing country is attempting to boost its economic activity. While its primary mandate is to control inflation, the bank is also tasked with ensuring sustainable economic growth. Given the rise in global economic uncertainty, the bank is considering its options. Which of the following measures is most likely to counteract potential deflationary pressures while promoting growth?

Considering the role of central banks as the ‘lender of last resort’, which of the following situations would most directly warrant intervention by a central bank?

Bank X observes that the two-week repo (repurchase) rate set by the central bank has decreased. What is a likely implication for Bank X in terms of its lending activities?

If the central bank conducts open market sales, what will likely happen to the money supply and interest rates?

Following a contractionary monetary policy decision, a central bank increased its policy rate. Which of the following effects is LEAST likely to occur as a result?

A country has adopted an expansionary monetary policy. How might this policy affect the interbank lending rate?

Assuming all else remains constant, what is the expected impact on the foreign currency prices of exports if there is an appreciation of the domestic currency?

Given the following table of asset prices:

Which of the following monetary policy actions is the central bank MOST likely to have undertaken?

If a country experiences an appreciation of its domestic currency due to higher policy rates, which of the following effects on its trade balance is MOST likely?

A central bank targeting an exchange rate has exhausted its foreign reserves and the value of its currency remains below the target. Which is the most probable subsequent action by the central bank?

The central bank of a country with a large current account deficit is most likely to:

In the context of exchange rate targeting, which scenario is likely to put upward pressure on the domestic currency, making it harder for a central bank to maintain a targeted exchange rate?

The Central Bank of Country A has consistently and transparently reported its intentions and economic indicators. However, despite meeting its inflation target, there’s a lack of public trust in the bank’s monetary policy. Which of the essential qualities of effective central banks is Country A most likely lacking?

Which of the following actions by a central bank is most indicative of operational independence?

Which of the following is most likely an implication of bond market vigilantes acting on their belief regarding a central bank’s inflation policy?

In a scenario where a country is experiencing a liquidity trap, what would most likely be observed?

Which of the following is a primary reason for central banks finding it difficult to counteract deflation compared to inflation?

Considering a country is currently implementing both expansionary monetary and fiscal policies, which of the following outcomes is most likely?

A country is facing a contraction in aggregate demand. To counter this, the government is considering a mix of fiscal policies. Which of the following fiscal stimuli would likely have the highest fiscal multiplier effect?

In a scenario where a country implements contractionary fiscal policy and expansionary monetary policy, what is likely to be the effect on private sector growth?

If a country’s central bank is following a contractionary monetary policy while the government implements an expansionary fiscal policy, which of the following is likely to be observed?