China Central Bank Boosts Stimulus to Aid Covid-Hit Economy

The People’s Bank of China (PBOC) lowered the required reserve ratio and cut its key interest rates twice this year.—Bloomberg.com

Answer the following questions to check your understanding of the story.

1) What is the effect of the PBOC lowering the required reserve ratio?

With a lower required reserve ratio, banks hold ____________ reserves and make ____________ loans.

a) more; fewer

b) more; more

c) fewer; fewer

d) fewer; more

2) How does the PBOC’s decision to cut its key interest rates twice during 2022 aid China’s covid-hit economy?

The PBOC’s decision eventually ____________.

a) increases potential GDP

b) decreases potential GDP

c) increases aggregate demand

d) decreases aggregate demand

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