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BSP2001 - Macro and International Economics Sem 1 2013/2014

Topic 3

Practice Multiple Choice Questions

1) Money functions as a medium of exchange because it is _______.
A) backed by gold.
B) readily exchangeable for other goods.
C) issued by a Central Bank.
D) a valuable commodity.


2) The demand for real money is _______.
A) inversely related to the interest rate.
B) inversely related to income.
C) positively related to the demand for bonds.
D) All of the above.


3) If real GDP is 4 billion, the price level is 1.25, and the nominal money stock is 0.5
billion, then velocity is _______.
A) 0.1.
B) 1.
C) 10.
D) 100.


4) Which of the following will cause the interest rate to rise?
A) a decrease in autonomous real money demand.
B) an increase in real money supply.
C) a decrease in autonomous real money demand combined with an increase in real money
supply.
D) an increase in autonomous real money demand combined with a decrease in real money
supply.


5) Assume that there are only two assets: money and bonds. If the supply of money
equals the demand for money,
A) the ratio of bonds to money is equal to one.
B) the supply of bonds also equals the demand for bonds.
C) the supply of money also equals the supply of bonds.
D) the supply of bonds also equals the demand for money.



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6) The size of the money multiplier depends on the _______.
A) reserve-deposit ratio.
B) the number of banks in the economy.
C) amount of bonds in the economy.
D) All of the above.


7) In an expansionary monetary policy, the Central Bank _______ bonds that will cause
the level of money supply to _______.
A) buys; fall.
B) buys; rise.
C) sells; rise.
D) sells; fall.


8) High powered money consists of _______.
A) loans held by banks and checkable deposits.
B) currency in circulation.
C) currency in circulation and bank reserves.
D) demand deposits and saving deposits.


9) Which of the following is an example of a contractionary monetary policy?
A) Decreasing government purchases.
B) Decreasing the discount rate.
C) Quantitative easing.
D) Increasing banks reserve requirement.


10) If the Central Bank performs an open market purchase of bonds, which of the
following is likely to happen?
A) Interest rate falls.
B) Interest rate remains unchanged.
C) Interest rate rises.
D) Interest rate changes ambiguously.











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Solution:

1) B
2) A
3) C
4) D
5) B
6) A
7) B
8) C
9) D
10) A