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money interest rates and output MCQs

Practise focused money interest rates and output questions with marked answers for exam preparation and subject revision.

money interest rates and output Mcqs
1. For the Central bank to keep the interest rat unchanged as the government increase spending, the Central Bank must continue to ?
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A. decrease the money supply

B. decrease the demand for money

C. increase the demand for money

D. increase the money supply
2. The refinancing rate is ?
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A. The interest rate the European Central Bank pays on reserves

B. He interests rate banks pay on the publics deposits

C. The interest rates the European Central Bank charges on loans to banks

D. The interest rate at Which commercial banks lend to and borrow from each other

E. The interest rates the public pays when borrowing from banks

3. Money that a government has required has required to be accepted in settlement of debts is ?
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A. legal tender

B. commodity money

C. barter money

D. currency value

4. The interest rate is determined in ?
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A. the money markets

B. the money and labor markets

C. the goods and labor markets

D. the goods market

5. 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 Gerards action ?
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A. Rs 10,00

B. Rs 0

C. Rs 1,000

D. Rs 9,000

6. Commodity money ?
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A. is used exclusively in the economies of western Europe and north America

B. has intrinsic value

C. has no intrinsic value

D. is used as reserves to back fiat money

7. The way in which government spending is supposed to reduce investment is by increasing ?
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A. imports

B. interest rates

C. overseas investment

D. incomes

8. Which of the following is not a function of money ?
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A. unit of account

B. hedge against inflation

C. Store of value

D. Medium of exchange

9. If the investment demand curve is vertical ?
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A. both monetary and fiscal policy are ineffective

B. monetary policy is effective but fiscal policy is ineffective

C. monetary policy is ineffective but fiscal policy is effective

D. both monetary and fiscal policy are effective

10. When real income increases other things equal we can expect the demand for real money holdings to ?
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A. fall

B. not change

C. increase

D. None of these

11. Money is ?
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A. Anything that is generally accepted as a medium of exchange

B. All of the above

C. The value of all coins and currency in circulation at any time

D. The same as income

12. Each point on the IS curve represents the equilibrium point in the ?
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A. money market for the given value of aggregate output

B. goods market for the given level of government spending

C. goods market for the given interest rate

D. money market for the given level of the money supply

13. 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?
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A. increase , increase

B. reduction, reduction

C. increase, reduction

D. reduction, increase

14. Equilibrium in the Money market will change if there is ?
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A. a change in the real money supply

B. any of the above

C. a change in real income

D. a change in competition in the banking industry

15. If banks and the private sector decide to hold less cash the money multiplier will be ?
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A. Unstable

B. Smaller

C. Unchanged

D. Larger
16. An item designated as money that is intrinsically worthless is ?
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A. precious metals

B. barter items

C. commodity money

D. fiat money
17. The monetary base is ________ and _________?
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A. retail deposits, wholesale deposits

B. retail sight deposits building society deposits

C. bank deposits, building society deposits

D. Currency in circulation, banks cash reserves
18. Three variables affect the demand for money they are _______ and __________?
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A. the price level interest rates real income

B. The time of year bank opening hours the price level

C. The proportion of weekly paid employees the time of year real income

D. bank opening hours, the proportion of weekly paid employees interest rates

19. An example of fiat money is ?
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A. gold

B. Paper euros

C. Silver coins

D. cigarettes

20. In terms of the demand for money the interest rate represents ?
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A. the rate at which current consumption can be exchanged for future consumption

B. the price of borrowing money

C. The opportunity cost of holding money

D. the return on money that is saved for the future

21. If the central bank buys financial securities in the open market to increase the monetary base, this is and example of ?
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A. Open Market operations

B. financial intermediation

C. Financial regulation

D. lender of less resort

22. An increase in the money supply aimed at increasing aggregate output is referred to as ?
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A. contractionary fiscal policy

B. expansionary monetary policy

C. expansionary fiscal policy

D. contractionary monetary policy

23. The demand for money represents the idea that there is ?
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A. a positive relationship between the interest rate and the quantity of money demanded

B. a negative relationship between the price level 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
24. The opportunity cost of holding money is determined by ?
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A. the inflation rates

B. the level of aggregate output

C. the interest rates

D. the discount rates

25. The curve that illustrates the negative relationship between the equilibrium values of aggregate output and the interest rate in the goods market is the ?
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A. aggregate demand curve

B. aggregate supply curve

C. IS curve

D. LM curve
26. Which of the following events will lead to an increase in the demand for money ?
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A. An increase in the interest rate

B. An increase in the level of aggregate output

C. A decrease in the price level

D. An increase in the supply of money

27. Which of the following statements about money is not true ?
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A. A debit card is not really money because it is only a means of transferring money between accounts

B. 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

C. 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

D. All the wealth that people hold, in whatever form, should be considered as money
28. The chain of events that results from an expansionary monetary policy is ?
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A. money demand increases the interest rate decreases planned investment increases aggregate output increases and money demand increases

B. money supply increases the interest rate increase planned investment increases aggregate output increases and money demand increases

C. money supply increases the interest rate decrease planned investment increases aggregate output increases and money demand increase

D. aggregate output increases the demand for money increase the interest rate increase planned investment

29. Which of the following policy actions by a central bank is likely to increase the money supply ?
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A. All of these will increase the money supply

B. Increasing reserve requirements

C. Increasing the refinancing rate

D. Buying government bonds in open market operations
30. 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 ?
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A. be unchanged

B. rise by less than the amount of the deposit

C. fall by exactly the amount of the deposit as long as the bank does not change its reserve ratio

D. rise by an amount that depends on the banks reserve ratio

E. fall by exactly the amount of the deposit as long as the bank does not change its reserve ratio

31. If planned investment becomes more sensitive to interest rate changes the crowding out effect will ?
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A. be reduced

B. fall to zero

C. not be affected

D. be increased
32. The primary function of bank is to ?
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A. Provide notes and coins for trade

B. Make a profit

C. Provide a cheque clearing system

D. Control the money supply

33. The three main tools of monetary policy are ?
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A. fiat, commodity and deposit money

B. Open-market operations reserve requirements and the refinancing rate

C. The money supply, government purchases and taxation

D. Government expenditures taxation and reserve requirements

E. Coin, currency and demand deposits

34. One of the transmission mechanisms of monetary policy is through consumer demand when interest rates ________ household wealth ________ and consumption _________?
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A. rise, falls, increase

B. rise, increase, falls

C. rise, falls, falls

D. rise; increase, increase

35. When economies speak of the demand for money which of the following are they asking ?
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A. What proportion of your financial assets do you want to hold in non-interest-bearing forms

B. How much cash do you wish you could have?

C. How much wealth would you like?

D. How much income would you like to earn?

36. If the central bank increases the money supply at the same time as the government increasing spending, it is suggested that investment will ?
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A. Suffer even more

B. be replaced by consumer spending

C. not be reduced as much as it would have been

D. be replaced by foreign investment

37. Which of the following activities is one of the responsibilities of the Bank of England to the banking system ?
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A. Issuing new bonds to finance the PSBR.

B. Loaning money to other countries that are friendly to the UK.

C. Assisting Banks that are in a difficult financial position

D. Auditing the various agencies and department of the government

38. Banks create money by ?
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A. issuing debit cards

B. printing it

C. accepting cheques

D. lending out part of their deposits
39. Each point on the LM curve represents the equilibrium point in the ?
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A. money market for the given level of the money supply

B. money market for different combinations of interest rates and output

C. goods market for the given interest rate

D. goods market for the given level of government spending

40. If there is a general shortage of liquidity in the money market then ?
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A. The short-term interest rate at which the economys 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

B. The short-term interest rate at which the economys 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.

C. The banks will increase their lending

D. the long-term interest rate in the economy will rise and the central bank will raise its interest rate in response

E. The short-term interest rate at which the economys 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

41. Reserve requirements that may be imposed on an economys banks by its central bank specify that banks by its central bank specify that banks reserve must be a minimum percentage of them ?
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A. assets

B. loans

C. deposits

D. government bonds

42. Which of the following is included in broad money, but not included in narrow money ?
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A. Automatic-transfer savings accounts

B. savings accounts

C. Travelers checks

D. Currency held outside banks

43. 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 ?
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A. Not change the money supply because banks already have excess reserves they cannot lend

B. Decrease the money supply because it is now cheaper for banks to borrow from the central bank instead instead of buying government securities

C. decrease the money supply because it will now be more expensive for business firms and consumers to borrow money

D. increase the money supply because it is now cheaper for banks to borrow from the central bank

44. The equilibrium level of aggregate output is determined in ?
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A. the goods and labor markets.

B. the money markets

C. the goods market

D. the money and labor market

45. M4 is a __________ measure of money and includes deposits at both __________ and _________?
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A. narrow, banks, building societies

B. wide, banks insurance companies

C. Narrow, banks insurance companies

D. Wide, banks building societies
46. Which of the following events will lead to a decrease in the equilibrium interest rate ?
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A. A decrease in the price level

B. An increase in the level of aggregate output

C. A sale of government securities by the central bank

D. An increase in the discount rate

47. The curve that illustrates the positive relationship between the equilibrium values of aggregate output and the interest rate in the money market is the ?
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A. money supply curve

B. LM curve

C. money demand curve

D. IS curve

48. 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 Banks action if the your banks reserve ratio is 20 percent ?
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A. Rs 1,000

B. Rs 0

C. Rs 4,000

D. Rs 5,000
49. The difference between a banks actual reserves and its required reserves is its?
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A. required reserve ratio

B. excess reserves

C. profit margin

D. net worth

50. 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?
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A. have no effect on

B. increase

C. double

D. reduce