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WorksheetsMonetary system
Total questions: 15
Worksheet time: 8mins
Which of the following is not a function of money?
hedge against inflation
medium of exchange
unit of account
store of value
Which of the following statements about money is not true?
A debit card is not really money because it is only a means of transferring money between accounts.
All the wealth that people hold, in whatever form, should be considered as money.
Wealth held in the current account you hold with your bank is almost as convenient for buying things as wealth held in your wallet, so the wealth in current accounts should be included in measures of money.
In a complex economy it is not easy to draw a clear dividing line between assets that should be considered as money and those that should not.
Which of the following statements is not true?
The purchase of government bonds from the public increases the money supply.
The US Federal Reserve is run by its Board of Governors, which comprises seven people who are appointed by the US President.
When the central bank sells government bonds to the public, the money supply decreases.
Monetary policy in the UK is set by the Chancellor of the Exchequer in consultation with the Bank of England
Monetary policy in the euro area is set by the Governing Council of the European Central Bank.
If the banks in an economy operate with a reserve ratio of 20 per cent then the money multiplier is:
4
20
25
5
Suppose Gerard moves his €1,000 demand deposit from Bank A to Bank B. If both banks operate with a reserve ratio of 10 per cent, what is the potential change in money supply as a result of Gerard’s action?
€10,000
€1,000
€9,000
€0
Reserve requirements that may be imposed on an economy’s banks by its central bank specify that banks’ reserves must be a minimum percentage of their
assets.
deposits
loans
government bonds.
Which of the following policy actions by a central bank is likely to increase the money supply?
Increasing the refinancing rate.
Buying government bonds in open market operations.
Increasing reserve requirements.
All of these will increase the money supply
Suppose the Bank of England purchases a £1,000 government bond from you. If you deposit the entire £1,000 in your bank, what is the total potential change in the money supply as a result of the Bank of England’s action if the your bank’s reserve ratio is 20 per cent?
£4,000
£5,000
£1,000
£0
The three main tools of monetary policy are
fiat, commodity, and deposit money.
open-market operations, reserve requirements, and the refinancing rate.
the money supply, government purchases, and taxation.
government expenditures, taxation, and reserve requirements.
Suppose all banks maintain a 100 percent reserve ratio. If an individual deposits €1,000 of currency in a bank,
the money supply increases by more than €1,000
the money supply increases by less than €1,000
the money supply decreases by less than €1,000
the money supply decreases by more than €1,000
the money supply is unaffected
Which one of the following is not true?
The difference between the price at which a commercial bank sells an asset to the central bank and the price it agrees to buy it back can be expressed as an annualized percentage of the selling price, and this is called the refinancing rate
Commercial banks may borrow from and lend to each other and the interest rate at which they do this is called the refinancing rate
In the UK the refinancing rate is known as the repo rate and in the USA it is referred to as the discount rate.
If the central bank has bought some assets from a commercial bank with an agreement that the commercial bank will buy them back at a later date, then this would be called a repo.
The refinancing rate is
the interest rate at which commercial banks lend to and borrow from each other.
the interest rate the European Central Bank pays on reserves.
the interest rate the public pays when borrowing from banks.
the interest rate the European Central Bank charges on loans to banks.
If there is a general shortage of liquidity in the money market then
the banks will increase their lending.
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 expected to reduce the supply of liquidity to the banks.
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 may be expected to rise as a result.
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.
When the central bank in an economy raises the refinancing rate it encourages commercial banks to reduce their lending, thereby tending to reduce the money supply.
True
False
A repurchase agreement is an agreement between the central bank and a commercial bank whereby a bond or other non-monetary asset is sold by one to the other with an agreement to reverse the transaction a short time later.
True
False
