Monetary Policy

Modified True or False

100

Expansionary policy makes borrowing EASIER.

True

200

The Philippine peso is determined by GNP.

False - supply and demand of the foreign exchange market.

300

The BSP can make decisions WITHOUT INTERFERENCE from legislative branches of the government.

False - Without

400

Lower reserve requirement = BANKS CAN LEND LESS = expansionary

 False - banks can lend more

500

Fiscal policy focuses on GOVERNMENT PROJECTS and spending.

 False - Government Revenue

Identification

100

What is the name of the central bank that manages monetary policy in the Philippines?

BSP

200

Identify the policy-making body within the BSP that meets to decide on interest rate adjustments.

Monetary Board

300

Name the type of monetary policy used to stimulate the economy during a recession.

Expansionary monetary policy

400

What is the primary goal of the BSP when it comes to inflation?

Maintain Price Stability

500

What is the monetary tool called when the BSP buys or sells government securities to influence the money supply?

Open Market Operations also know as OMO's

Situational

100

1. If the exchange rate of the peso becomes unstable and changes rapidly in a short time, what will the BSP most likely do?

A. Print more money 

B. Intervene to smoothen the exchange rate movement 

C. Peg the peso permanently to the US dollar 

D. Stop all imports 

Answer: B. Intervene to smoothen the exchange rate movement

Rationale: The BSP allows the peso to float, but steps in to reduce sharp or erratic fluctuations.

200

2. If the BSP lowers the policy interest rate, what is it trying to do?

A. Encourage borrowing and spending

B. Slow down the economy 

C. Reduce inflation 

D. Increase taxes 

Answer: A. Encourage borrowing and spending

Rationale: Lower interest rates make borrowing cheaper, which boosts spending and investment.

300

3. The Bangko Sentral ng Pilipinas observes that inflation is projected to exceed the 4% upper target band in the next quarter due to rising oil and food prices. However, unemployment remains high, and business investments are still below pre-pandemic levels.

What is the most appropriate monetary policy response based on inflation targeting principles? 

A. Increase the policy rate to prevent overheating, even at the cost of slowing job recovery 

B. Maintain the current policy rate, allowing temporary inflation while supporting economic activity 

C. Lower the policy rate to boost investment and employment despite the inflationary risk

D. Conduct open market sales of government securities to immediately absorb excess liquidity 

Answer: B. Maintain the current policy rate, allowing temporary inflation while supporting economic activity 

Rationale: BSP’s inflation-targeting allows for flexibility if inflation is supply-driven and expected to be temporary. Supporting economic recovery without over-tightening is often the better choice in such cases.

400

4. Suppose the Philippine peso suddenly depreciates from ₱55 to ₱61 per USD due to capital outflows caused by interest rate hikes in the US. The BSP anticipates imported inflation to rise, but local demand remains weak.

What should the BSP most likely do to stabilize the peso without compromising domestic growth? 

A. Aggressively raise interest rates to match US rates 

B. Allow the peso to depreciate further as part of a free float policy 

C. Intervene in the forex market to reduce sharp volatility 

D. Implement higher reserve requirements for banks

Answer: C. Intervene in the forex market to reduce sharp volatility 

 Rationale: BSP allows a floating exchange rate but intervenes to reduce excessive volatility. Aggressive tightening may harm domestic growth unnecessarily.

500

5. You are a member of the BSP Monetary Board. Inflation is at 3.8%, just below the upper target. However, new data shows strong wage growth and rising housing prices.

What risk must you be most vigilant about when deciding on the next policy move?

A. Underemployment due to premature tightening

B. Cost-push inflation from agricultural imports

C. Asset bubbles and demand-pull inflation

D. Peso appreciation hurting exporters

Answer: C.  Asset bubbles and demand-pull inflation

Rationale: Rising wages and asset prices may signal overheating or excess demand. Demand-pull inflation and asset bubbles could follow if monetary policy remains too loose.

Multiple Choice

100

Which is NOT a goal of Monetary Policy?

a. Support Economic Growth

b. Control Inflation

c. Stabilize the currency

d. Promote unemployment

Answer: D.

200

It is a type of Monetary Policy that is used when inflation is too high and Central Bank raises interest rates.

a. Contractionary

b. Expansionary

c. Fiscality

d. Topicality

Answer: A

300

What is the key difference between monetary and fiscal policy?

 a.  Both policies are managed by the same government body. 

b.  Monetary policy focuses on government revenue and spending, while fiscal policy focuses on interest rates and inflation.

 c.  Monetary policy is controlled by a central bank (like the BSP), while fiscal policy is managed by the government's finance department and legislature (like the DOF and Congress). 

d.  They both have the same primary goal of controlling inflation.

Answer: C

400

What is the primary purpose of adjusting interest rates when inflation is high?

A. To encourage borrowing and investment.

B. To slow down spending.

C. To increase economic growth.

D. To lower the value of the currency.

Answer: B.

500

What is the primary purpose of rediscounting facilities?

A. To increase long-term investments.

B. To ease short-term liquidity problems for banks.

C. To provide loans to individuals.

D. To control the overall money supply.

Answer: B

Secret

100

1. What is the current exchange rate of Dollar to Peso?

Answer: P56.36

200

2. Who is the Bangko Sentral ng Pilipinas Governor? 

Answer: Eli M. Remolona Jr.

300

3. What year was "The New Central Bank Act" enacted?

Answer: 1993

400

4. Who decides the value of the Philippine Peso in Foreign Exchange?

Answer: Market

500

5. In the new Philippine Bank Notes. What animal is found in a 20 peso bill?

Answer: Asian Palm Civet (Musang)