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WorksheetsBusiness Economics Quiz
Total questions: 100
Worksheet time: 50mins
Barter exchange refers to exchange of goods/services for goods/ services. Which of the following is the limitation of Barter exchange?
Lack of Double coincidence of wants
Lack of store of value
Lack of common measure of value
All of the above
Which of the following is the primary function of money?
Medium of exchange
Standard of Deferred Payments
Store of value
All of the above
Which function of money is also known by the name of “Unit of Account”?
Medium of exchange
Standard of deferred Payments
Measure of value
Store of value
If there were no money, we would be reduced to a _________
Non-Monetary Economy
Barter Economy
Monetary Economy
None of the above
Fiat money is materially ___________ but has ____________ simply because a nation collectively agreed to ascribe a value to it.
Worthless, value
Valuable, worthless
Transparent, liquid
Liquid, exchangeability
Which of the following is Not a Part of general characteristics that money should possess in order to make it serve its function as money.
Generally Acceptable & possessing uniformity
Durable or long-lasting
Portable & effortlessly recognizable
Easily counterfeitable
Any unit of money, whose face value and intrinsic value are equal, is known as _____________ .
Full-Bodied Money
Representative full-bodied money
Credit money
All of the above
Which one of the following form of legal tender money can be paid in discharge of a debt up to a certain limit only?
Coins
Paper Notes
Cheques
Bank Draft
Choose the incorrect statement.
Anything that would act as a medium of exchange is money
Money has generalized purchasing power and is generally acceptable in settlement of all transactions
Money is a totally liquid asset and provides us with means to access goods and services
Currency which represents money does not necessarily have intrinsic value
Money performs all of the three functions mentioned below, namely:
Medium of exchange, price control, store of value
Unit of account, store of value, provide yields
Medium of exchange, unit of account, store of value
Medium of exchange, unit of account, income distribution
Demand for money is:
Derived demand
Direct demand
Real income demand
Inverse demand
Higher the __________, higher would be ________ of holding cash and lower will be the ______________ .
Demand for money, opportunity cost, interest rate
Price level, opportunity cost, interest rate
Real income, opportunity cost, demand for money
Interest rate, opportunity cost, demand for money
The money is demanded for its purchasing power. Therefore, the demand for money is in the nature of ____________ .
Purchasing power demand
Real power demand
Direct demand.
Derived demand
The demand for money is actually
Demand for liquidity
Demand to store value
Both (a) and (b)
None of the above
The decision about how much of one’s given stock of wealth should be held in the form of money rather than as other assets (like bonds) is called as ___________ .
Demand for money
Decision for money
Supply of money
None of above
The individuals, households as well as firms hold money which gives little or no return. This is because ____________ .
Money is liquid
Money has demonstration effect
Money gives authority
None of these
The quantity of nominal money or how much money people would is like to hold in liquid form depends many factors. Which of the following is the variable on which this demand for money demands?
Income
General level of prices & rate of interest
Real GDP and the degree of financial innovation
All of the above
The quantity which people desire to hold is ___________ proportional to the income.
Directly
Inversely
Regressive
None of these
The Demand for money depends upon prevailing price level. _______ the prices, ________ should be the holding of money.
Lower, Higher
Higher, Lower
Higher, Higher
Lower, Lower
Which of the following innovation, has reduced the need for holding liquid money?
Internet Banking
Application based transfer
Automated Teller Machines
All of the above
The rate of interest is crucial factor on which demand for money depends on. The demand for money is _________ proportional to the interest rate.
Directly
Inversely
Progressively
None of the above
Which one of the following is not a theory of Demand for money?
The quantity theory of money
Hicksian theory of Demand
Cash Balance Approach
Keynesian theory of Demand for money
The quantity theory of money holds that:
Changes in the general level of commodity prices are caused by changes in the quantity of money
There is strong relationship between money and price level and the quantity of money is the main determinant of the price
Changes in the value of money or purchasing power of money are determined first and foremost by changes in the quantity of money in circulation
All of the above
Which theory was propounded in the book “The Purchasing power of money”?
Quantity theory of money
Cash Balance Approach
Keynesian theory of Demand for money
None of these
As regards Fisher’s quantity of money, which of the following is incorrect?
There is direct relationship between money supply and inflation
There is indirect relationship between money supply and value of money
Price is a passive factor
The economy is not at full employment.
Both the versions of the quantity theory of money demonstrate that there is a ____________ relationship between money and price level and the quantity of money is the __________ determinant of the price level or value of money.
Weak, main
Strong, main
Weak, very passive
Strong, very passive
Which one of following is the criticism of Quantity theory of money?
Velocity of money (V) and total number of transactions (T) are constant
There is full employment in economy
Money is only used as medium of exchange
All of the above
Fisher’s version is formally stated as MV = PT. In this equation of exchange.
M and V are constant
P and T are constant
M and P are constant
V and T are constant
Which are of the following is the expanded form of Fisher’s equation of exchange?
MV = PT
MV + M’V’ = P’T’
MV = PT + PT
MV + M’V’ = PT + P’T’
As per fisher’s expanded quantity theory of money, the total value of transactions made is equal to _________ and the value of money flow is equal to _________.
MV; PT
PT; MV
PT; MV + M’V’
MV + M’,V’; PT
The Cambridge approach to quantity theory is also known as:
Cash balance approach
Fisher’s theory of money
Classical approach
Keynesian Approach
Fisher’s approach and the Cambridge approach to demand for money consider:
Money’s role in acting as a store of value and therefore, demand for money is for storing value temporarily
Money as a means of exchange and therefore demand for money is termed as for liquidity preference
Money as a means of transactions and therefore, demand for money is only transaction demand for money
None of the above
The Cambridge equation is: M_d = K.P.Y. In above equation, ________ is exogenous.
M_d
K
P
Y
The Cambridge equation focuses on ________ instead of ______.
Money demand; money supply
Money supply; money demand
Money demand; money movement
Money supply; money movement
The cash balance approach was put forward by Cambridge economists. The economists associated with this approach are:
(i) Alfred Marshall
(ii) A.C. Pigou
(iii) D.H. Robertson
(iv) John Maynard Keynes
The Cambridge money demand function is stated as follows: M_d = KPY. In this equation, PY stands for:
National Income
Real National Income
Nominal Income
Real Income.
In Cambridge money demand function, ________ is a parameter reflecting the proportion of national income (PY) that people want to hold as cash balance:
M_d
K
P
Y
Real money is:
Nominal money adjusted to the price level
Real national income
Money demanded at given rate of interest
Nominal GNP divided by price level
With reference to Cambridge theory, the product of the price level (P) and the real Income (Y) is known as ________.
Nominal Income
National Income
Real Income
Equilibrium Income
The Keynesian Theory of Demand for money is also called as:
Demand Preference Theory
Liquidity Preference Theory
Preference Demand Theory
Preference Liquidity Theory
According to Keynes, by which motive the desire to hold money arises?
Transaction motive
Precautionary motive
Speculative motive
All of the above
Which motive is this, according to the Keynesian Theory?
Transaction motive
Precautionary motive
Speculative motive
Unforeseen motive
According to John Maynard Keynes, the transactions demand for money depends only on the __________ and not influenced by the_________.
Rate of Interest, level of Income
Level of Income, Rate of Interest
Psychology of individual, Real Income
Psychology of individual, Rate of Interest
As per liquidity preference theory, the transactions demand for money is a _________ proportional and _________ function of the level of income.
Direct, positive
Indirect positive
Direct, negative
Indirect, negative
Under Keynesian theory, the aggregate transaction demand for money is a function of ________________.
Specific Income
Individual Income
Notional Income
National Income
The precautionary money balances people want to hold ___________.
As income elastic and not very sensitive to rate of interest
As income inelastic and very sensitive to rate of interest
Are determined primarily by the level of transactions they expect to make in the future
Are determined primarily by the current level of transactions
Under _________ motive, people hold money in cash form or liquid form for unforeseen contingencies such as sickness, accident, danger of unemployment and other uncertain perils.
Transaction
Speculative
Precautionary
Non-contingency
Prof. J. M. Keynes regarded the Precautionary balance as income ________ and by itself not very sensitive to ________.
Elastic, rate of interest
Inelastic, rate of interest
Elastic, level of income
Inelastic, level of income
The amount of money demanded under the precautionary motive depends on _________.
Size of income
Prevailing economic/political conditions
Personal characteristics of individual
All of the above
Speculative demand for money __________.
Is not determined by interest rates
Is positively related to interest rates
Is negatively related to interest rates
Is determined by general price level
Which one the following motive reflects people’s, desire to hold cash in order to be equipped to exploit any attractive investment opportunity requiring cash expenditure?
Transaction motive
Precautionary motive
Speculative motive
Non-speculative motive
Under liquidity preference theory, Keynes assumed that the expected return on money is________ while the expected return on bonds are __________ and ________.
Zero, interest payment, expected rate of capital gain
One, interest payment, expected rate of capital gain
Zero, fixed interest, fixed loss
None of the above
With reference to speculative demand for money, the market value of bonds and the market rate of interest are __________ related.
Positively
Inversely
Directly
Not
According to Keynes, if the current interest rate is high:
People will demand more money because the capital gain on bonds would be less than return on money
People will expect the interest rate to rise and bond price to fall in the future
People will expect the interest rate to fall and bond price to rise in the future
Either (a) or (b) will happen
Under liquidity preference theory, if the current rate of interest is lower than the critical rate of interest, his asset portfolio would consist __________.
Only government bonds
Wholly of cash
Both cash and bonds equally
Either cash or bonds
__________ is an adverse economic situation that can occur when consumers and investors hoard cash rather than spending or investing it even when interest rates are low.
Liquidity trap
Monetary trap
Precautionary trap
Stimulus trap
There is a liquidity trap at short term _________per cent interest rate.
10
7.5
5
Zero
Which of the following statement is correct, in the situation of liquidity trap?
Investors would maintain cash savings rather than hold bonds
The speculative demand becomes perfectly elastic with respect to interest rate
The speculative money demand curve becomes parallel to the X-axis
All of the above
In the situation of liquidity trap, the monetary authority is ________ to stimulate the economy with monetary policy.
Unable
Able
Perfectly able
Very effective
The inventory-theoretic approach to the transactions demand for money ________.
Explains the negative relationship between money demand and the interest rate
Explains the positive relationship between money demand and the interest rate
Explains the positive relationship between money demand and general price level
Explains the nature of expectations of people with respect to interest rates and bond prices
In which approach, the money or real cash balance was essentially viewed as an inventory held for transaction purposes.
Inventory explicit Approach
Inventory implicit Approach
Inventory theoretic Approach
Inventory regressive Approach
Who has developed deterministic theory of transaction demand for money known as Inventory Theoretic approach?
Baumol and Tobin
Baumol and Fisher
Tobin and Fisher
Baumol and Marshall
According to Baumol which of the following formula can be used to calculate the average amount of cash withdrawal which minimises cost?
C = √2byr
C = √2by/r
C = √by/r^2
C = √2br/y
In accordance with the Inventory Theoretic Approach, an individual combines his asset portfolio of ________ and ___________ in such proportions that his ________ of holding the assets is minimized.
Cash; bonds; overall cost
Shares; bonds; overall cost
Cash; bond; bond cost
Cash; bond; Cash cost
The nominal demand for money rises if:
The opportunity costs of money holdings - i.e. bonds and stock returns, rB and rE, respectively-decline and vice versa
The opportunity costs of money holdings - i.e. bonds and stock returns, rB and rE, respectively-rises and vice versa
The opportunity costs of money holdings – i.e. bonds and stock returns, rB and rE, respectively remain constant
(b) and (c) above
__________ considered demand for money is as an application of a more general theory of demand for capital assets.
Baumol
James Tobin
J. M. Keynes
Milton Friedman
As per Milton Friedman’s re-statement of the quantity Theory, the nominal demand for money is a function of __________, which is represented by permanent income divided by the ________ rates, defined as the average return on the _________ asset classes in the monetarist theory world.
Total wealth, discount, five
Total wealth, Interest, five
Permanent wealth, Interest, six
None of these
As per Friedman’s theory, the nominal demand for money is influenced by inflation, a positive inflation rate ________ the real value of money balances, there by ______ the opportunity costs of money holdings.
Increases, reduces
Reduces, increasing
Stimulates, reduces
None of these
The present expected value of all future income is Friedman’s measure of wealth. Friedman’s regarded this as __________.
Permanent income
Current income
Temporary income
Flexible income
Under Friedman’s Quantity theory, the nominal demand for money is _________ related to the price level.
Negatively
Positively
Regressively
Not
According to James Tobin’s theory, an individual’s behaviour shows risk aversion, which means they prefer _________ risk to ________ risk at a given rate of return.
Less, more
More, less
Less, positive
More, negative
Tobin’s theory holds that people prefer ________ portfolio of money, bonds and shares, with each person opting for a little different balance between risk and return.
Mixed
Diversified
Mixed or diversified
non-diversified
In Tobin’s portfolio approach, the demand function for money as an asset slopes downwards, where horizontal axis shows ________ and vertical axis shows _______.
Demand for money, rate of interest
Rate of interest, demand for money
Supply for money, rate of Interest
Demand for money, supply for Money
The demand for money as behaviour towards “aversion to risk” was propounded by:
Fisher
Marshall
Friedman
Tobin
Which of the following statement holds true with reference to Tobin’s Demand for money theory involving individual’s behaviour towards risk?
Money is a safe asset
Investor will be willing to exercise a trade-off
In
None of the above
ds true with reference to Tobin’s Demand for money theory involving individual’s behaviour towards risk?
Money is a safe asset
Investor will be willing to exercise a trade-off
Investor sacrifice to some extent, the higher return from bonds for a reduction in risk
All of the above
According to Baumol and Tobin’s approach to demand for money, the optimal average money holding is:
A positive function of income Y and the price level P
A positive function of transactions costs c,
A negative function of the nominal interest rate i
All the above
The total stock of money held by the _________ in an economy at a particular point of time is called Money Supply.
Public
Government
Banks
Corporate Entities
Money Supply is a ___________ variable.
Flow
Stock
Both (a) & (b)
None of the above
Money Supply does not include stock of money held by the ___________ as well as ________ of country.
Public, government
Public, banking system
Government, banking system
Public, banks
Which one of the following is the feature of money supply?
Money includes money held by public only
Money does not include money-creating sector (suppliers of money)
Money is a stock concept, as it is concerned with a particular point of time
All of the above
Choose the correct statement from the following:
Money is deemed as something held by the public and therefore only currency held by the public is included in money supply
Money is deemed as something held by the public and therefore inter-bank deposits are included in money supply
Since inter-bank deposits are not held by the public, therefore inter-bank deposits are excluded from the measure of money supply
Both (a) and (c) above
Which one of the following is not the producers of money?
Government
Banking System
Household & Firms
All of the above
In the definition of money supply, the term public includes economic unit:
Households
Firms
Institutions
All of the above
While discussing the definition of “Supply of Money” and the Standard measures of money, _________ is/are not included.
Inter bank Deposits
Money held by the Government
Banking System
All of the above
In the definition of money supply, the word “public” includes:
All Local Authorities
Non-Banking Financial Institutions
Foreign Central Banks
All of the above
The Central Banks all over the World adopt monetary policy which depends to a large extent on the controllability of the:
Monetary base
Money Supply
Monetary base & the money Supply
Money Supply & money demand
The empirical analysis of the ________ facilitates analysis of monetary developments in order to provide a deeper Understanding of the causes of money growth.
Money Supply
Money Demand
Money supplied by households
Money demanded by Governments
The supply of money in the economy depends on the decision of:
Commercial Banks
Central Bank
Ministry of Finance
Central Government
Paper currency is a:
Representative Money
Full-bodied Money
Metallic Money
None of the above
The primary source of money supply in all countries is:
The Reserve Bank of India
The Central bank of the country
The Bank of England
The Federal Reserve
The supply of money in an economy depends on.
The decision of the central bank based on the authority conferred on it
The decision of the central bank and the supply responses of the commercial banking system
The decision of the central bank in respect of high powered money
Both (a) and (c) above
Under the ‘minimum reserve system’ the central bank is ________.
Empowered to issue currency to any extent by keeping an equivalent reserve of gold and foreign securities
Empowered to issue currency to any extent by keeping only a certain minimum reserve of gold and foreign securities
Empowered to issue currency in proportion to the reserve money by keeping only a minimum reserve of gold and foreign securities
Empowered to issue currency to any extent by keeping a reserve of gold and foreign securities to the extent of ` 350 crores
The Money is a liability of the _________ and an asset of the________.
Issuing central bank, holding public
Pubic, central bank
Issuing central bank, central government
Central government, issuing central bank
The currency issued by the Central Bank is “FIAT MONEY” and is backed by supporting _________ and its value is guaranteed by the ____________.
Currency, central Bank
Currency, government
Reserves, government
Reserves, central bank
Banks create money supply in the process of borrowing and lending transactions with the public. Money so created by the commercial Banks is called:
Credit Money
Artificial Money
Debit Money
None of these
Which of the following is a type of money?
Metallic Currency
Paper Currency
Digital Currency
All of the above
With the advent of cutting edge technologies and advancement in technology has made it possible for the development of new form of money viz. CBDC. What is the full form of CBDC?
Central Bank Digital Certificate
Central Bank Dynamic Certificate
Central Bank Digital Currency
Central Bank Dynamic Currency
At present, which of the following Statement is true about the crypto currencies?
These face Significant Legislative Uncertainties
These are not legally recognised in India as currency
These are not categorized as money
All of the above
Banks in the country are required to maintain deposits with the central bank __________.
To provide the necessary reserves for the functioning of the central bank
To meet the demand for money by the banking system
To meet the central bank prescribed reserve requirements and to meet settlement obligations
To meet the money needs for the day to day working of the commercial banks
