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| 1 | |
The monetary base is ___________ and ________________. |
| | A) | bank deposits, building society deposits |
| | B) | currency in circulation, banks’ cash reserves |
| | C) | retail sight deposits, building society deposits |
| | D) | retail deposits, wholesale deposits |
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| 2 | |
The ___________ is currency in circulation outside the banking system, plus deposits of commercial banks and building societies.
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| | A) | banks’ reserves |
| | B) | monetary base |
| | C) | money supply |
| | D) | money multiplier |
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| 3 | |
A required reserve ratio is a minimum ratio of __________ to deposits that banks are required to hold. |
| | A) | cash reserves |
| | B) | liquid assets |
| | C) | money at call |
| | D) | overdrafts |
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| 4 | |
The discount rate is the interest rate that the Central Bank charges when banks want to borrow cash. |
| | A) | True |
| | B) | False |
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| 5 | |
In ____________ equilibrium the quantity of real balances demanded and supplied are equal. |
| | A) | labour market |
| | B) | goods market |
| | C) | money marketx |
| | D) | property market |
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| 6 | |
In a closed economy, monetary policy affects consumption and investment demand by affecting _______________. |
| | A) | nominal interest rates |
| | B) | real interest rates |
| | C) | prices |
| | D) | wages |
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| 7 | |
Monetary policy can affect consumption through the ________ effect. |
| | A) | price |
| | B) | investment |
| | C) | wealth |
| | D) | housing market |
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| 8 | |
The life-cycle hypothesis assumes people make a lifetime consumption plan (including bequests to their children) that is just affordable out of lifetime income (plus any initial wealth inherited). |
| | A) | True |
| | B) | False |
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| 9 | |
Given the cost of new capital goods and expected stream of future profits, a higher interest rate ________ investment demand. |
| | A) | has no effect upon |
| | B) | increases |
| | C) | reduces |
| | D) | does not change |
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| 10 | |
If the central bank buys financial securities in the open market to increase the monetary base, this is an example of ____________. |
| | A) | lender of last resort |
| | B) | financial intermediation |
| | C) | open market operations |
| | D) | financial regulation |
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| 11 | |
If there is excess demand in the money market there must be a corresponding ___________ in the bond market. |
| | A) | excess supply |
| | B) | excess demand |
| | C) | elastic supply |
| | D) | inelastic supply |
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| 12 | |
Equilibrium in the money market will change if there is _____________. |
| | A) | a change in the real money supply |
| | B) | a change in real income |
| | C) | a change in competition in the banking industry |
| | D) | any of the above |
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| 13 | |
The money supply is controlled by using open market operations to determine the money multiplier and by using reserve requirements and the discount rate to determine the monetary base. |
| | A) | True |
| | B) | False |
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| 14 | |
Central banks prefer to fix the __________and accept the resulting _____________. |
| | A) | demand for money, interest rate |
| | B) | interest rate, equilibrium money supply |
| | C) | demand for money, equilibrium money supply |
| | D) | interest rate, demand for money |
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| 15 | |
One of the transmission mechanisms of monetary policy is through consumer demand. When interest rates ___________ household wealth ___________ and consumption _________. |
| | A) | rise, increases, increases |
| | B) | rise, falls, increases |
| | C) | rise, increases, falls |
| | D) | rise, falls, falls |
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| 16 | |
The permanent income hypothesis would suggest that a person winning a modest lottery prize might interpret such a change as a change in their permanent income. |
| | A) | True |
| | B) | False |
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| 17 | |
Lower interest rates make households ____________ by ___________ the price of bonds and _________ share prices. |
| | A) | poorer, lowering, lowering |
| | B) | poorer, increasing, lowering |
| | C) | wealthier, increasing, increasing |
| | D) | wealthier, lowering, lowering |
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| 18 | |
A reduction in interest rates, causes an increase in the monetary base that results in an __________ in the availability of consumer credit and a _______________ in the cost of consumer credit. |
| | A) | reduction, increase |
| | B) | reduction, reduction |
| | C) | increase, reduction |
| | D) | increase, increase |
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| 19 | |
A fall in investment demand can result from ___________. |
| | A) | higher interest rates |
| | B) | lower expected future profits |
| | C) | more expensive capital goods |
| | D) | all of the above |
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| 20 | |
Suppose the central bank requires banks to hold 100% cash reserves against deposits. Then the money multiplier is: |
| | A) | zero |
| | B) | unity |
| | C) | undefined |
| | D) | 10 |
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