Y5

1.14 Read the following quote and answer questions 1.14 -1.16 "China's central bank Monday conducted a total of 10 billion yuan (about $1.4 billion) of reverse repos to maintain liquidity in the banking system. The interest rate for the seven-day reverse repos was set at 2 percent, according to the People's Bank of China. The move aims to keep stable liquidity in the banking system, the central bank said. A reverse repo is a process in which the central bank purchases securities from commercial banks through bidding, with an agreement to sell them back in the future." The area of responsibility that China's central bank is undertaking with the above decision is that of: (4 marks) a) Fiscal policy. b) Service to the government. c) Provision of economic and statistical services. d) Maintaining financial stability. 1.15 The measure of money that will not be immediately affected by the above action by China's central bank is: (4 marks) a) M1 b) M2 c) M3 d) Quasi money 1.16 The policy instrument that China's central bank is making use of here is that of: (4 marks) a) Fiscal policy b) Open market policy. c) Public debt management. d) Intervention in foreign exchange markets.