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1) The motive for holding money that encourages investors to hold bonds when interest rates are low, with the hope of selling them when interest rates are high, is the ? a. Transactions motive b. precautionary motive c. profit motive d. speculation motive
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2) Which of the following events will lead to a decrease in the equilibrium interest rate ? a. A sale of government securities by the central bank b. An increase in the level of aggregate output c. An increase in the discount rate d. A decrease in the price level
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3) When economies speak of the demand for money which of the following are they asking ? a. How much cash do you wish you could have? b. How much wealth would you like? c. How much income would you like to earn? d. What proportion of your financial assets do you want to hold in non-interest-bearing forms
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4) 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 ? a. increase the money supply because it is now cheaper for banks to borrow from the central bank b. decrease the money supply because it will now be more expensive for business firms and consumers to borrow money c. Not change the money supply because banks already have excess reserves they cannot lend d. Decrease the money supply because it is now cheaper for banks to borrow from the central bank instead instead of buying government securities
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5) As the required reserve ratio is decreased the money multiplier ? a. decreases b. remain the same, as long as banks hold no excess reserves c. could either increase or decrease d. increases
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6) Which of the following activities is one of the responsibilities of the Bank of England to the banking system ? a. Assisting Banks that are in a difficult financial position b. Auditing the various agencies and department of the government c. Loaning money to other countries that are friendly to the UK. d. Issuing new bonds to finance the PSBR.
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7) Which of the following is included in broad money, but not included in narrow money ? a. savings accounts b. Travelers checks c. Currency held outside banks d. Automatic-transfer savings accounts
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8) An item designated as money that is intrinsically worthless is ? a. precious metals b. commodity money c. fiat money d. barter items
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9) Government Securities with terms of more than one year are called ? a. bills of exchanges b. government bonds c. Treasury bills d. Capital bills
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10) If there is a general shortage of liquidity in the money market then ? a. The banks will increase their lending b. The short-term interest rate at which the economy’s commercial banks lend to and borrow from each other will fall and the central bank may be expect c. The short-term interest rate at which the economy’s commercial banks lend to and borrow from each other will rise and the long-term interest rate ma 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 economy’s commercial banks lend to and borrow from each other will rise and the central bank may be expect
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