Money, Interest Rates And Output MCQs with Answers – Page 2

Question 21 Money, Interest Rates And Output

To keep the interest rate unchanged when government spending rises, what must the central bank keep doing?

Correct answer B. Increase the money supply

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Question 22 Money, Interest Rates And Output

In the simple Keynesian view, what shape is the aggregate supply curve?

Correct answer C. Horizontal until it reaches full capacity and then becomes vertical

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Question 23 Money, Interest Rates And Output

If the central bank expands the money supply at the same time as the government raises spending, what is likely to happen to investment?

Correct answer D. Not be reduced as much as it would have been

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Question 24 Money, Interest Rates And Output

If planned investment becomes more sensitive to changes in the interest rate, what happens to the crowding-out effect?

Correct answer A. Be increased

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Question 25 Money, Interest Rates And Output

Which curve shows the negative relationship between equilibrium aggregate output and the interest rate in the goods market?

Correct answer B. IS curve

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Question 26 Money, Interest Rates And Output

What happens when the money supply increases?

Correct answer A. The LM curve shifts to the right

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Question 27 Money, Interest Rates And Output

Keynesians and monetarists disagree about how steep the IS and LM curves are. According to monetarists, what are the slopes of the IS and LM curves?

Correct answer C. Flat; steep

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Question 28 Money, Interest Rates And Output

What is the primary aim of a commercial bank?

Correct answer B. Make a profit

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Question 29 Money, Interest Rates And Output

What does the money supply consist of?

Correct answer C. Currency in circulation plus bank deposits

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Question 30 Money, Interest Rates And Output

Which three variables affect the demand for money?

Correct answer B. The price level, interest rates, real income

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Question 31 Money, Interest Rates And Output

Other things being equal, what happens to the demand for real money balances when real income rises?

Correct answer C. Increase

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Question 32 Money, Interest Rates And Output

What does the monetary base consist of?

Correct answer B. Currency in circulation, banks’ cash reserves

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Question 33 Money, Interest Rates And Output

Which of the following would change equilibrium in the money market?

Correct answer A. Any of the above

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Question 34 Money, Interest Rates And Output

One transmission channel of monetary policy works through consumer demand. When interest rates rise, what happens to household wealth and to consumption?

Correct answer D. Rise; falls; falls

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Question 35 Money, Interest Rates And Output

What can cause investment demand to fall?

Correct answer D. All of the above

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Question 36 Money, Interest Rates And Output

Which of these is NOT a function of money?

Correct answer A. Hedge against inflation

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Question 37 Money, Interest Rates And Output

Which statement about commodity money is true?

Correct answer B. Has intrinsic value

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Question 38 Money, Interest Rates And Output

Banca Solida has always kept a reserve ratio of 25 percent. It is taken over by Gung-Ho Bank, which keeps a reserve ratio of 12.5 percent. If Banca Solida adopts its new owner’s practices, what happens to the money supply in its country?

Correct answer D. Money supply will increase because Banca Solida will increase its loans

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Question 39 Money, Interest Rates And Output

Imtiaz moves his Rs 1,000 demand deposit from Bank A to Bank B. If both banks hold reserves of 10 percent, what is the potential change in the money supply?

Correct answer C. Rs 0

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Question 40 Money, Interest Rates And Output

Which central bank action is likely to increase the money supply?

Correct answer C. Buying government bonds in open market operations

Open question