Money and Banking
134 questions· page 1 of 14
In the quantity theory of money equation, MV = PT, V is defined as the income velocity of circulation.
Which change would tend to reduce the value of V?
Options
A a move to monthly rather than weekly salary payments by firms
B an increase in interest rates
C an increase in the use of cash machines to reduce money balances held
D a decrease in the use of credit cards by individuals
A country’s government decides to set artificially low interest rates.
What describes a negative consequence to this country of this policy?
Options
A a higher rate of consumer price inflation
B a rapid growth in gross domestic product
C an increase in investment by manufacturers and real estate developers
D a reduction in borrowing by consumers
According to the quantity theory of money, which combination would result in the general level of prices remaining unchanged?
Options
| money supply | total number of transactions | velocity of circulation | |
|---|---|---|---|
| A | remains unchanged | remains unchanged | rises by 3% |
| B | rises by 3% | remains unchanged | rises by 3% |
| C | rises by 3% | rises by 3% | remains unchanged |
| D | rises by 3% | rises by 3% | rises by 3% |
The diagram outlines the monetary transmission mechanism following quantitative easing. Key words have been omitted from the process.
central bank ......1...... government assets
↓
short-term interest rates ......2......
↓
investment ......3......
↓
real GDP rises
Which words complete gaps 1, 2 and 3?
Options
| 1 | 2 | 3 | |
|---|---|---|---|
| A | buys | fall | rises |
| B | buys | rise | rises |
| C | sells | fall | rises |
| D | sells | fall | falls |
The central bank of a country decreases interest rates.
What are the likely consequences?
Options
| internal value of the currency | external value of the currency | |
|---|---|---|
| A | falls | falls |
| B | falls | rises |
| C | rises | falls |
| D | rises | rises |
What is the most likely consequence when there is an increase in the national debt?
Options
A the creation of additional money
B a current account deficit on the balance of payments
C a surplus in the government’s budget
D the crowding out of private sector investment
According to the quantity theory of money, which combination would result in the general level of prices remaining unchanged?
Options
| money supply | total number of transactions | velocity of circulation | |
|---|---|---|---|
| A | remains unchanged | remains unchanged | rises by 3% |
| B | rises by 3% | remains unchanged | rises by 3% |
| C | rises by 3% | rises by 3% | remains unchanged |
| D | rises by 3% | rises by 3% | rises by 3% |
In Keynesian economic theory, what is the purpose of interest?
Options
A to bring national income and expenditure into line
B to control the level of economic growth
C to create a balance between savings and investment
D to provide a reward for surrendering liquidity
The quantity theory of money is sometimes represented by the equation MV = PT.
Which statement is not correct?
Options
A M is a measure of the total value of notes and coins in circulation in the country.
B P measures the average level of prices in the country.
C T stands for the quantity of real transactions during the year.
D V represents the number of times a unit of money is spent during a given time period.
The United States government has been using a policy of quantitative easing to increase economic growth.
What is the most likely effect of this policy on the internal and external value of the US dollar?
Options
| internal value | external value | |
|---|---|---|
| A | decreases | decreases |
| B | decreases | increases |
| C | increases | increases |
| D | increases | decreases |