Financial Sector
When a Central Bank conducts open market operations by selling government securities, what happens to overall liquidity in the banking system?
Liquidity remains constant, but interest rates fall
Liquidity decreases as banks use reserves to purchase these assets
Liquidity increases with additional assets entering marketplace
There is no change in liquidity due to equal exchange of cash for securities
What function does money perform when it allows wealth to be saved for future purchases?
Store of value
Standard for barter
Medium of exchange
Unit of account
How might an unexpected increase in the inflation rate affect contracts made in terms of nominal values for future payments?
Both parties benefit equally as long-term contracts account for potential inflation changes.
It benefits creditors as they receive more valuable dollars in repayment.
It has no effect on contracts because inflation was not anticipated.
It benefits debtors as they pay back with dollars that are worth less.
What effect would an increase in a nation’s interest rates have on its exchange rate in the short run?
An initial depreciation followed by appreciation as market adjusts slowly to rate changes.
No change in the exchange rate since interest rates do not impact capital flows directly.
Depreciation of its currency as investors seek lower-yielding investments elsewhere.
Appreciation of its currency due to increased foreign investment inflows.
When economists say that money acts as a store of value, they mean that money can do which of the following?
Retain purchasing power over time.
Only be held by banks or governments.
Fluctuate greatly in worth day-to-day.
Be exchanged directly for any good or service.
How would an appreciation of the domestic currency most likely affect a country's exports?
Not affect exports as currency value does not influence international trade.
Decrease exports due to higher prices for foreign buyers.
Decrease imports because domestic goods become relatively cheaper.
Increase exports by making them more competitive abroad.
Which term describes money’s role in comparing the value of goods and services?
Standard of deferred payment
Store of value
Unit of account
Medium of exchange

How are we doing?
Give us your feedback and let us know how we can improve
Which of the following is an example of contractionary monetary policy?
Reducing taxes
Expanding the money supply
Increasing interest rates
Increasing government spending
What must true money have in order to efficiently facilitate trades between buyers and sellers?
Acceptability
Uniformity
Portability
Divisibility
In a liquidity trap situation where interest rates are close to zero but investment remains low, what unconventional monetary tool should the central bank employ?
Quantitative easing by purchasing long-term securities to inject liquidity into the banking system.
Decreasing the discount rate further even though it's already near zero percent level.
Raising reserve requirements for banks to incentivize increased lending at prevailing low-interest rates.
Implementing contractionary fiscal measures such as increased taxation in hopes of redirecting funds into investments rather than consumption.