Competitive Money, Interest Rates And Output ( Economics ) MCQs – Updated Economics MCQs
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Latest Economics MCQs
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Latest Money, Interest Rates And Output ( Economics ) Mcqs
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A reduction in interest rates, causes an increases in the monetary base that results in an _________ in the availability of consumer credit and a ________ in the cost of consumer credit?
A. reduction, reduction
B. reduction, increase
C. increase, reduction
D. increase , increase
Central banks prefer to fix the ____ and accept the resulting _____?
A. demand for money equilibrium money supply
B. interest rate equilibrium money supply
C. demand for money, interest rate
D. interest rate, demand for money
If the central bank buys financial securities in the open market to increase the monetary base, this is and example of ?
A. financial intermediation
B. lender of less resort
C. Open Market operations
D. Financial regulation
M4 is a __________ measure of money and includes deposits at both __________ and _________?
A. wide, banks insurance companies
B. narrow, banks, building societies
C. Narrow, banks insurance companies
D. Wide, banks building societies
When interest rate rise, other things equal, we can expect the quantity of real money holding to ?
B. not change
D. None of these
If the keep some money available in case I see a bargain this is an example of ?
A. transactions demand for money
B. asset demand for money
C. token demand for money
D. precautionary demand for money
If banks and the private sector decide to hold less cash the money multiplier will be ?
Banks create money by ?
A. issuing debit cards
B. printing it
C. accepting cheques
D. lending out part of their deposits
Money has 3 main function they are __________ and __________?
A. Medium of exchange unit of account IOU
B. Medium of exchange inflation hedge store of value
C. IOU , inflation hedge store of value
D. Medium of exchange unit of account store of value
E. Medium of exchange unit of account store of value
Each point on the LM curve represents the equilibrium point in the ?
A. goods market for the given interest rate
B. money market for different combinations of interest rates and output
C. goods market for the given level of government spending
D. money market for the given level of the money supply
The curve that illustrates the positive relationship between the equilibrium values of aggregate output and the interest rate in the money market is the ?
A. money demand curve
B. LM curve
C. money supply curve
D. IS curve
Each point on the IS curve represents the equilibrium point in the ?
A. goods market for the given interest rate
B. money market for the given value of aggregate output
C. money market for the given level of the money supply
D. goods market for the given level of government spending
The way in which government spending is supposed to reduce investment is by increasing ?
A. overseas investment
D. interest rates
The idea the government spending causes a reduction in private investment is called ?
A. investment blight
B. fiscal drag
D. the Thatcher effects
If The Central bank tries to keep the interest rate constant when the economy is operating on the steep part of the AS curve, _________ will occur?
A. a hyperinflation
C. a depression
D. a recession
If the investment demand curve is vertical ?
A. monetary policy is effective but fiscal policy is ineffective
B. both monetary and fiscal policy are ineffective
C. monetary policy is ineffective but fiscal policy is effective
D. both monetary and fiscal policy are effective
An example of an expansionary monetary policy is ?
A. an increase in the discount rate
B. an increase in the required reserve ratio
C. a reduction in the taxes banks pay on their profits.
D. the Central bank buying government securities in the open market
The interest rate is determined in ?
A. the goods and labor markets
B. the money and labor markets
C. the goods market
D. the money markets
The equilibrium level of aggregate output is determined in ?
A. the money markets
B. the goods market
C. the goods and labor markets.
D. the money and labor market
The demand for money represents the idea that there is ?
A. a negative relationship between the price level and the quantity of money demanded
B. a positive relationship between the interest rate and the quantity of money demanded
C. a negative relationship between the level of aggregate output and the quantity of money demanded
D. a negative relationship between the interest rate and the quantity of money demanded
The motive for holding money that encourages investors to hold bonds when interest rates are low, with the hope of selling them when interest rates are high, is the ?
A. precautionary motive
B. Transactions motive
C. profit motive
D. speculation motive
Which of the following events will lead to a decrease in the equilibrium interest rate ?
A. An increase in the level of aggregate output
B. A sale of government securities by the central bank
C. An increase in the discount rate
D. A decrease in the price level
When economies speak of the demand for money which of the following are they asking ?
A. How much cash do you wish you could have?
B. How much income would you like to earn?
C. How much wealth would you like?
D. What proportion of your financial assets do you want to hold in non-interest-bearing forms
Assume that commercial banks are holding excess reserves because business firms and consumers are not willing to borrow money A decrease in the discount rate is likely to ?
A. decrease the money supply because it will now be more expensive for business firms and consumers to borrow money
B. increase the money supply because it is now cheaper for banks to borrow from the central bank
C. Not change the money supply because banks already have excess reserves they cannot lend
D. Decrease the money supply because it is now cheaper for banks to borrow from the central bank instead instead of buying government securities
As the required reserve ratio is decreased the money multiplier ?
A. could either increase or decrease
B. remain the same, as long as banks hold no excess reserves
Which of the following activities is one of the responsibilities of the Bank of England to the banking system ?
A. Assisting Banks that are in a difficult financial position
B. Loaning money to other countries that are friendly to the UK
C. Auditing the various agencies and department of the government.
D. Issuing new bonds to finance the PSBR.
Which of the following is included in broad money, but not included in narrow money ?
A. savings accounts
B. Currency held outside banks
C. Travelers checks
D. Automatic-transfer savings accounts
An item designated as money that is intrinsically worthless is ?
A. commodity money
B. precious metals
C. fiat money
D. barter items
Government Securities with terms of more than one year are called ?
A. Treasury bills
B. government bonds
C. bills of exchanges
D. Capital bills
If there is a general shortage of liquidity in the money market then ?
A. The banks will increase their lending
B. the long-term interest rate in the economy will rise and the central bank will raise its interest rate in response
C. The short-term interest rate at which the economy’s commercial banks lend to and borrow from each other will rise and the long-term interest rate may be expected to rise as a result
D. The short-term interest rate at which the economy’s commercial banks lend to and borrow from each other will fall and the central bank may be expected to reduce the supply of liquidity to the banks
E. The short-term interest rate at which the economy’s commercial banks lend to and borrow from each other will rise and the central bank may be expected to increase the supply of liquidity to the banks.
The three main tools of monetary policy are ?
A. The money supply, government purchases and taxation
B. Open-market operations reserve requirements and the refinancing rate
C. fiat, commodity and deposit money
D. Government expenditures taxation and reserve requirements
E. Coin, currency and demand deposits
Suppose the State Bank purchases a Rs 1,000 government bond from you. If you deposit the entire Rs 1,000 in you bank what is the total potential change in the money supply as a result of the State Bank’s action if the your bank’s reserve ratio is 20 percent ?
A. Rs 1,000
B. Rs 5,000
C. Rs 4,000
D. Rs 0
Which of the following policy actions by a central bank is likely to increase the money supply ?
A. Increasing reserve requirements
B. All of these will increase the money supply
C. Buying government bonds in open market operations
D. Increasing the refinancing rate
Suppose Imtiaz moves his Rs1,000 demand deposit from Bank A to Bank B. If both banks operate with a reserve ratio of 10 percent What is the potential change in money supply as a result of Gerard’s action ?
A. Rs 1,000
B. Rs 10,00
C. Rs 9,000
D. Rs 0
Bance Solida has, in the past, always operated with a reserve ratio of 25 percent. It has now been taken over by Gung-Ho Bank Which operates with a reserve ration of 12½ percent, Assuming that Banca Solida adopts the business practices of its new owner, What will be the effect on money supply in the country in which Banca Solida operates ?
A. Money supply will increase because Banca Solida will increase its loans
B. Money supply will be unchanged because the central bank has made no policy changes
C. Money supply will decrease because the loans will have to be repaid
D. The effect on money supply cannot be determined from the information given
Commodity money ?
A. is used as reserves to back fiat money
B. has intrinsic value
C. is used exclusively in the economies of western Europe and north America
D. has no intrinsic value
Which of the following is not a function of money ?
A. hedge against inflation
B. unit of account
C. Medium of exchange
D. Store of value
A fall in investment demand can result from ?
A. more expensive capital goods
B. lower expected future profits
C. higher interest rates
D. All of the above
One of the transmission mechanisms of monetary policy is through consumer demand when interest rates ________ household wealth ________ and consumption _________?
A. rise, falls, increase
B. rise; increase, increase
C. rise, increase, falls
D. rise, falls, falls
Equilibrium in the Money market will change if there is ?
A. a change in real income
B. a change in the real money supply
C. a change in competition in the banking industry
D. any of the above
The monetary base is ________ and _________?
A. retail deposits, wholesale deposits
B. Currency in circulation, banks cash reserves
C. retail sight deposits building society deposits
D. bank deposits, building society deposits
When real income increases other things equal we can expect the demand for real money holdings to ?
A. not change
D. None of these
Three variables affect the demand for money they are _______ and __________?
A. The time of year bank opening hours the price level
B. the price level interest rates real income
C. bank opening hours, the proportion of weekly paid employee’s interest rates
D. The proportion of weekly paid employees the time of year real income
The money supply is ?
A. Money + bank cards + credit cards
B. State Bank of Pakistan Issue Department
C. Cheques + money + bank cards + credit cards
D. Currency in circulation plus bank deposits
The primary function of bank is to ?
A. Provide notes and coins for trade
B. Control the money supply
C. Make a profit
D. Provide a cheque clearing system
Keynesians and monetarists differ over how steep the IS and LM curves actually are Monetarists claim that the IS curve must be __________ and the LM curve must be __________?
A. flat; steep
B. steep; flat
C. flat; flat
D. steep; steep
When the money supply increase ?
A. The LM curves shifts to the left
B. the economy moves up the LM curve
C. The economy moves down the LM curve
D. The LM curve shift to the right
The curve that illustrates the negative relationship between the equilibrium values of aggregate output and the interest rate in the goods market is the ?
A. aggregate demand curve
B. LM curve
C. aggregate supply curve
D. IS curve
If planned investment becomes more sensitive to interest rate changes the crowding out effect will ?
A. not be affected
B. be reduced
C. fall to zero
D. be increased
If the central bank increases the money supply at the same time as the government increasing spending, it is suggested that investment will ?
A. be replaced by foreign investment
B. not be reduced as much as it would have been
C. Suffer even more
D. be replaced by consumer spending
According to the simple Keynesian view the aggregate supply curve is ?
A. upward sloping over all levels of output
B. downward sloping over all levels of output
C. horizontal until it reaches full capacity and then becomes vertical
D. vertical until it reaches full capacity and then becomes horizontal
For the Central bank to keep the interest rat unchanged as the government increase spending, the Central Bank must continue to ?
A. increase the demand for money
B. increase the money supply
C. decrease the money supply
D. decrease the demand for money
The interest rate ?
A. is determined in the goods market and has no influences on the money market
B. is determined in the money market and influences the level of planned investment and thus the goods market
C. is determined in the goods market and influences the level of planned investment and thus the money market
D. is determined in the money market and has no influence on the goods market
An increase in the money supply aimed at increasing aggregate output is referred to as ?
A. contractionary monetary policy
B. expansionary monetary policy
C. contractionary fiscal policy
D. expansionary fiscal policy
The chain of events that results from an expansionary monetary policy is ?
A. money supply increases the interest rate increase planned investment increases aggregate output increases and money demand increases
B. money supply increases the interest rate decrease planned investment increases aggregate output increases and money demand increase
C. aggregate output increases the demand for money increase the interest rate increase planned investment
D. money demand increases the interest rate decreases planned investment increases aggregate output increases and money demand increases
In terms of the demand for money the interest rate represents ?
A. the rate at which current consumption can be exchanged for future consumption
B. the return on money that is saved for the future
C. The opportunity cost of holding money
D. the price of borrowing money
The opportunity cost of holding money is determined by ?
A. the level of aggregate output
B. the discount rates
C. the interest rates
D. the inflation rates
The main reason that people hold money to buy things is referred to as the ?
A. Precautionary motive
B. Profit motive
C. Transactions motive
D. speculation motive
Which of the following events will lead to an increase in the demand for money ?
A. A decrease in the price level
B. An increase in the level of aggregate output
C. An increase in the interest rate
D. An increase in the supply of money
If the quantity of money demanded exceeds the quantity of money supplied then the interest rate will ?
A. change in a certain direction
C. remain constant
A bank has excess reserves to lend but is unable to find anyone to borrow the money This will _________ the size of the money multiplier?
C. have no effect on
The difference between a bank’s actual reserves and its required reserves is its?
A. profit margin
B. required reserve ratio
C. excess reserves
D. net worth
A checking deposit in a bank in considered _________ of that bank?
B. an asset
C. net worth
D. a liability
Money that a government has required has required to be accepted in settlement of debts is ?
A. currency value
B. barter money
C. legal tender
D. commodity money
Which one of the following is not true ?
A. In the UK the refinancing rate is known as the repo rate and in the USA it is referred to as the discount rate.
B. Commercial banks may borrow from and lend to each other and the interest rate at which they do this is called the refinancing rate
C. The difference between the price at which commercial bank sells an asset to the central bank and the price it agrees to buy it back can be expressed as an annualized percentage of the selling price and this is called the refinancing rate
D. If the central bank has bought some assets from a commercial bank with an agreement that the commercial bank will buy them back at a later date, then this would be called a repo
E. If the central bank raises its refinancing rate then the commercial banks will try to reduce their lending and so reduce the need to borrow from the central bank
Suppose the central bank purchases a government bond from a person who deposits the entire amount received from the sale in her bank the money supply will ?
A. rise by an amount that depends on the bank’s reserve ratio
B. fall by exactly the amount of the deposit as long as the bank does not change its reserve ratio
C. rise by less than the amount of the deposit
D. fall by exactly the amount of the deposit as long as the bank does not change its reserve ratio
E. be unchanged
Suppose all banks maintain a 100 percent reserve ratio. If an individual deposits Rs 1,000 of currency in a bank ?
A. the money supply increase by less than Rs 1,000
B. the money supply increases by more than Rs 1,000
C. the money supply decrease by less than Rs 1,000
D. the money supply decrease by more than Rs 1,000
E. The money supply is unaffected
The refinancing rate is ?
A. He interests rate banks pay on the public’s deposits
B. The interest rate the European Central Bank pays on reserves
C. The interest rates the public pays when borrowing from banks
D. The interest rates the European Central Bank charges on loans to banks
E. The interest rate at Which commercial banks lend to and borrow from each other
Reserve requirements that may be imposed on an economy’s banks by its central bank specify that banks by its central bank specify that banks reserve must be a minimum percentage of them ?
D. government bonds
If the banks in an economy operate with a reserve ratio of 20 percent then the money multiplier is ?
Which of the following statements about money is not true ?
A. Wealth held in the current account you hold with your bank is almost as convenient for buying things as wealth held in your wallet so the wealth in current accounts should be included in measures of money
B. All the wealth that people hold, in whatever form, should be considered as money
C. A debit card is not really money because it is only a means of transferring money between accounts
D. In a complex economy it is not easy to draw a clear dividing line between assets that should be considered as money and those that should not
An example of fiat money is ?
A. Paper euros
B. Silver coins
Money is ?
A. The same as income
B. Anything that is generally accepted as a medium of exchange
C. The value of all coins and currency in circulation at any time
D. All of the above