Topic Questions (MCQ – HARD): Money Market – 3auk

What is a primary advantage of banknotes (paper money) compared to coins (metallic money)?

They have lower production costs.

They are more convenient for small transactions.

They are universally accepted as legal tender.

They possess higher intrinsic value.

What does 'the value of money' refer to?

the purchasing power of a given amount of money in terms of goods and services

the total monetary value of assets held in the form of money

the expenses associated with producing money

the opportunity cost of holding wealth in the form of money

Which characteristic of money is crucial for it to effectively function as a store of value?

divisibility

liquidity

portability

scarcity

What can lead to an increase in interest rates?

an unanticipated rise in bond prices

an expansion of the nominal money supply

an expansion in the quantity of output

a decrease in the general price level

In a closed economy with a single bank operating with a cash reserve ratio of 10%, customers deposit $10,000 in cash. Assuming there are no changes in the amount of physical currency in circulation, what is the maximum loan amount that the bank can create?

$1,000

$9,000

$90,000

$100,000

Consider the diagram illustrating the market for loanable funds.

What combination of factors could lead to a shift of the equilibrium from point E1 to point E2?

a decrease in the propensity to consume and an expansion in bank lending

the discovery of new oil reserves and a rise in the propensity to save

technological advancements and a reduction in bank lending

an increase in the propensity to consume and the introduction of new products

The diagram displays the two primary components (U and V) of the liquidity preference curve.

What can be inferred about component U?

It represents an active balance that is sensitive to changes in interest rates.

It represents an active balance that is not sensitive to changes in interest rates.

It represents an idle balance that is sensitive to changes in interest rates.

It represents an idle balance that is not sensitive to changes in interest rates.

Based on loanable funds theory, what factor will lead to an increase in the rate of interest?

a rise in the rate of investment

a rise in the desire to hold money rather than other assets

a rise in the level of savings

a rise in the quantity of money supplied

What would lead to a growth in the amount of money held in bank accounts?

an increase in the public's preference for cash holdings

an increase in government spending funded through borrowing from the central bank

an increase in the portion of bank deposits reserved as cash by banks

a sale of securities in the open market by the central bank

Which asset would be excluded from a country's broad money supply?

deposits in commercial banks with fixed maturity periods

deposits in commercial banks that can be transferred by cheques

deposits in the central bank held by commercial banks

physical currency (notes and coins) held by individuals