Economics - Economics Section 2
56. Which of the following is least likely a cost associated with expected inflation?
- Option : B
- Explanation : Generally speaking, the higher the policy rate, the higher the potential penalty that banks will have to pay to the central bank. If they run short of liquidity, the greater will be their willingness to reduce lending, and the more likely that broad money growth will shrink.
58. Assume that the central bank increases the reserve requirement. The most likely effect will be:
- Option : A
- Explanation : Increasing the reserve requirement will decrease the money supply, money multiplier and new deposits.
- Option : C
- Explanation : In accordance to the monetary transmission mechanism, implementation of the policy is most likely to work through the economy via four channels i.e. bank lending rates, exchange rates, asset prices, and expectations or confidence.
60. A change in a central bank’s policy rate will affect:
- Option : C
- Explanation : A change in a central bank’s policy rate will affect both asset prices and expectations about future interest rates.
