money interest rates and output MCQs – Page 2

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

money interest rates and output Mcqs

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

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