What are the three primary roles of money in an economy?

Money acts as a medium of exchange, a unit of account, and a store of value.

Fill in the blanks: M3 is known as ___ money, defined by the formula M3 = M1 + ___ deposits.

Broad; time

True or False: Interbank deposits are included in the definition of the money supply.

False; interbank deposits are excluded from the money supply.

What is the relationship between the reserve ratio and the money multiplier?

The reserve ratio and the money multiplier have an inverse relationship; as the reserve ratio increases, the money multiplier decreases.

How does the behavior of the public affect the money multiplier?

If the public holds more currency relative to deposits, it reduces the money multiplier because less money is available for banks to lend.

What is a Central Bank Digital Currency (CBDC), and how does it differ from traditional currency?

CBDC is a digital currency.

• Issued by central banks.

• Digital only, no physical form.

• Exchangeable with traditional currency.

What effect does government spending have on the money supply when using the Ways and Means Advances (WMA) facility?

Government spending increases money supply.

• WMA provides banks more reserves.

• Increased reserves boost lending capacity.

• Money multiplier effect enhances supply.

True or False: The central bank has no influence over the money supply.

False; the central bank controls the issuance of currency and regulates the money supply.

What is the formula for M2, and how does it differ from M1?

M2 includes savings deposits.

• M2 is broader than M1.

• Includes savings and time deposits.

• Reflects overall money supply.