Multiple choice questions

Try the following quiz to test your knowledge of Chapter 17. Once you have completed the questions, click on Submit for Grade to get your results. This activity contains 20 questions.

Government securities with terms of more than one year are called:
government bonds. Treasury bills. capital bills. bills of exchange.

Money is:
the value of all coins and currency in circulation at any time. anything that is generally accepted as a medium of exchange. the same as income. all of the above.

An item designated as money that is intrinsically worthless is:

fiat money. commodity money. barter items. precious metals.

Money that a government has required to be accepted in settlement of debts is:

currency value.

barter money. legal tender. commodity money.

Which of the following is included in broad money, but not included in narrow money?
Savings accounts. Currency held outside banks. Automatic-transfer savings accounts. Travellers checks.

A checking deposit in a bank is considered __________ of that bank.

capital net worth an asset a liability

Which of the following activities is one of the responsibilities of the Bank of England to the banking system?
Issuing new bonds to finance the PSBR. Assisting banks that are in a difficult financial position. Auditing the various agencies and departments of the government. Loaning money to other countries that are friendly to the UK.

The difference between a bank's actual reserves and its required reserves is its:
net worth. profit margin. excess reserves. required reserve ratio.

As the required reserve ratio is decreased, the money multiplier:

decreases. remains the same, as long as banks hold no excess reserves. could either increase or decrease. increases.

A bank has excess reserves to lend but is unable to find anyone to borrow the money. This will __________ the size of the money multiplier.
reduce increase have no effect on double

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:
decrease the money supply because it will now be more expensive for business firms and consumers to borrow money.

decrease the money supply because it is now cheaper for banks to borrow from the central bank instead of buying government securities. increase the money supply because it is now cheaper for banks to borrow from the central bank not change the money supply because banks already have excess reserves they cannot lend.

If the quantity of money demanded exceeds the quantity of money supplied, then the interest rate will:
change in an uncertain direction. rise. fall. remain constant.

When economists speak of the 'demand for money', which of the following questions are they asking?
How much income would you like to earn? What proportion of your financial assets do you want to hold in noninterest bearing forms? How much cash do you wish you could have? How much wealth would you like?

Which of the following events will lead to an increase in the demand for money?
An increase in the interest rate. An increase in the supply of money. An increase in the level of aggregate output. A decrease in the price level.

Which of the following events will lead to a decrease in the equilibrium interest rate?
An increase in the level of aggregate output. A decrease in the price level. An increase in the discount rate. A sale of government securities by the central bank

The main reason that people hold money - 'to buy things' - is referred to as the:
profit motive. speculation motive. precautionary motive. transactions motive.

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:
speculation motive. transactions motive. profit motive. precautionary motive.

The opportunity cost of holding money is determined by:

the interest rate.

the discount rate. the level of aggregate output. the inflation rate.

The demand for money represents the idea that there is:
a positive relationship between the interest rate and the quantity of money demanded. a negative relationship between the price level and the quantity of money demanded. a negative relationship between the level of aggregate output and the quantity of money demanded. a negative relationship between the interest rate and the quantity of money demanded.

In terms of the demand for money, the interest rate represents:

the price of borrowing money. the return on money that is saved for the future. the opportunity cost of holding money. the rate at which current consumption can be exchanged for future consumption.