Economics MCQs

Page No. 290

An item designated as money that is intrinsically worthless is ?


aprecious metals


b commodity money


cfiat money


dbarter items


View Answer fiat money

Government Securities with terms of more than one year are called ?


abills of exchanges


b government bonds


c Treasury bills


dCapital bills


View Answer government bonds

If there is a general shortage of liquidity in the money market then ?


aThe banks will increase their lending


bThe 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 expected to reduce the supply of liquidity to the banks


cThe 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 may be expected to rise as a result


d 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.



The three main tools of monetary policy are ?


a fiat, commodity and deposit money


bOpen-market operations reserve requirements and the refinancing rate


c The money supply, government purchases and taxation


d Government expenditures taxation and reserve requirements



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 Bank’s action if the your bank’s reserve ratio is 20 percent ?


a Rs 4,000


b Rs 5,000


cRs 1,000


d Rs 0


View Answer Rs 5,000

Which of the following policy actions by a central bank is likely to increase the money supply ?


aIncreasing the refinancing rate


b All of these will increase the money supply


c Buying government bonds in open market operations


d Increasing reserve requirements



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 Gerard’s action ?


aRs 10,00


bRs 1,000


c Rs 9,000


d Rs 0


View Answer Rs 0

Bance Solida has, in the past, always operated with a reserve ratio of 25 percent. It has now been taken over by Gung-Ho Bank Which operates with a reserve ration of 12½ percent, Assuming that Banca Solida adopts the business practices of its new owner, What will be the effect on money supply in the country in which Banca Solida operates ?


aMoney supply will increase because Banca Solida will increase its loans


b The effect on money supply cannot be determined from the information given


cMoney supply will decrease because the loans will have to be repaid


d Money supply will be unchanged because the central bank has made no policy changes



Commodity money ?


a has no intrinsic value


bhas intrinsic value


c is used exclusively in the economies of western Europe and north America


d is used as reserves to back fiat money


View Answer has intrinsic value

Which of the following is not a function of money ?


ahedge against inflation


bMedium of exchange


cunit of account


d Store of value



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