Money, Interest Rates And Output MCQs with Answers – Page 3

Question 41 Money, Interest Rates And Output

The State Bank buys a Rs 1,000 government bond from you, and you deposit the full Rs 1,000 in your bank. If your bank’s reserve ratio is 20 percent, what is the total potential change in the money supply?

Correct answer A. Rs 5,000

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Question 42 Money, Interest Rates And Output

What are the three main tools of monetary policy?

Correct answer E. Open market operations, reserve requirements and the refinancing rate

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Question 43 Money, Interest Rates And Output

What happens if there is a general shortage of liquidity in the money market?

Correct answer C. 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.

Open question

Question 44 Money, Interest Rates And Output

What are government securities with a term of more than one year called?

Correct answer B. Government bonds

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Question 45 Money, Interest Rates And Output

What is the name for an item declared to be money that has no intrinsic worth?

Correct answer A. Fiat money

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Question 46 Money, Interest Rates And Output

Which of these is counted in broad money but not in narrow money?

Correct answer B. Savings accounts

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Question 47 Money, Interest Rates And Output

Which of these is one of the Bank of England’s responsibilities towards the banking system?

Correct answer B. Assisting Banks that are in a difficult financial position

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Question 48 Money, Interest Rates And Output

What happens to the money multiplier when the required reserve ratio is lowered?

Correct answer D. Increases

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Question 49 Money, Interest Rates And Output

Commercial banks are holding excess reserves because firms and consumers do not want to borrow. What is a cut in the discount rate likely to do?

Correct answer B. Not change the money supply because banks already have excess reserves they cannot lend

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Question 50 Money, Interest Rates And Output

When economists talk about the demand for money, what question are they asking?

Correct answer C. What proportion of your financial assets do you want to hold in non-interest-bearing forms

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Question 51 Money, Interest Rates And Output

Which of these events would lower the equilibrium interest rate?

Correct answer B. A decrease in the price level

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Question 52 Money, Interest Rates And Output

Which motive for holding money relates to investors timing their purchases and sales of bonds according to expected changes in interest rates?

Correct answer C. Speculative motive

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Question 53 Money, Interest Rates And Output

What relationship does the demand for money represent?

Correct answer C. A negative relationship between the interest rate and the quantity of money demanded

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Question 54 Money, Interest Rates And Output

In which market is the equilibrium level of aggregate output determined?

Correct answer A. The goods market

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Question 55 Money, Interest Rates And Output

In which market is the interest rate determined?

Correct answer B. The money market

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Question 56 Money, Interest Rates And Output

Which of the following is an example of expansionary monetary policy?

Correct answer C. The Central bank buying government securities in the open market

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Question 57 Money, Interest Rates And Output

If the investment demand curve is vertical, how effective are monetary and fiscal policy?

Correct answer B. Monetary policy is ineffective but fiscal policy is effective

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Question 58 Money, Interest Rates And Output

If the central bank tries to hold the interest rate constant while the economy is on the steep part of the AS curve, what will occur?

Correct answer D. A hyperinflation

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Question 59 Money, Interest Rates And Output

What is the idea that government spending reduces private investment called?

Correct answer B. Crowding-out

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Question 60 Money, Interest Rates And Output

Through which channel is government spending supposed to reduce private investment?

Correct answer B. Interest rates

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