ECONOMIC - TOPIC VI - MULTIPLE CHOICE QUESTIONS - By Antonio Ginés
Types of money
M0, M1, M2 and M3
M1, M2, M3 and M4
M1, M2 and M3
Notes and coins (currency) in circulation and in bank vaults, plus reserves which commercial banks hold in their accounts with the central bank (minimum reserves and excess reserves).
M0
M1
M2
It is the base from which other forms of money (like checking deposits) are created
M0
M1
M2
It is traditionally the most liquid measure of the money supply
M0
M1
M2
It is usually called the monetary base.
M0
M1
M2
Notes and coins (currency) in circulation and in bank vaults, plus reserves which commercial banks hold in their accounts with the central bank (minimum reserves and excess reserves) + checkable deposits (checking deposits, officially called demand deposits, and other deposits that work like checking deposits) + traveler's checks
M1
M0
M2
Represents the assets that strictly conform to the definition of money: assets that can be used to pay for a good or service or to repay debt.
M1
M0
M2
Checks linked to checking deposits are gradually becoming . . . popular
less
more
equal
Debit cards linked to checking deposits are becoming . . . popular
more
less
equal
Notes and coins (currency) in circulation and in bank vaults, plus reserves which commercial banks hold in their accounts with the central bank (minimum reserves and excess reserves) + checkable deposits (checking deposits, officially called demand deposits, and other deposits that work like checking deposits) + traveler's checks + savings deposits, time deposits less than $100,000 and money market deposit accounts for individuals
M2
M0
M1
Represents money and "close substitutes" for money
M2
M0
M1
Economists use . . . when looking to quantify the amount of money in circulation and trying to explain different economic monetary conditions.
M2
M0
M1
It is a key economic indicator used to forecast inflation.
M2
M0
M1
Notes and coins (currency) in circulation and in bank vaults, plus reserves which commercial banks hold in their accounts with the central bank (minimum reserves and excess reserves) + checkable deposits (checking deposits, officially called demand deposits, and other deposits that work like checking deposits) + traveler's checks + savings deposits, time deposits less than $100,000 and money market deposit accounts for individuals + large time deposits, institutional money-market funds, short-term repurchase agreements, along with other larger liquid assets
M3
M1
M2
It is no longer published or revealed to the public by the US central bank. However it is estimated by a web site called Shadow Government Statistics.
M3
M1
M2
Money functions
Medium of exchange, unit of account and store of value
Divisible, fungible and measurable
Indivisible, fungible and measurable
When money is used to intermediate the exchange of goods and services, it is performing a function as a . . .
medium of exchange
unit of account
store of value
A . . . is a standard numerical unit of measurement of the market value of goods, services, and other transactions. It's also known as a "measure" or "standard" of relative worth and deferred payment
unit of account
medium of exchange
store of value
To function as a 'unit of account', whatever is being used as money must be:
Divisible, fungible, weight, measure or size
Indivisible, fungible, weight, measure or size
neither is correct
Diamonds, works of art or real estate . . . suitable as money
are not
are
neither is correct
To act as a . . ., a commodity, a form of money, or financial capital must be able to be reliably saved, stored, and retrieved — and be predictably useful when it is so retrieved.
store of value
unit of account
medium of exchange
Fiat currency like paper or electronic money no longer backed by gold in most countries is not considered by some economists to be a . . .
store of value
medium of exchange
unit of account
In the current economics systems, money is created by two ways:
Central bank money and commercial bank money
Central bank money and exchange or bartering
Commercial bank money and exchange or bartering
. . . are: banknotes, coins, electronic money through loans to private banks
Central bank money
Commercial bank money
neither is correct
Sometimes referred to as checkbook money
Commercial bank money
Central bank money
Neither is correct
In economics, . . . is a rise in the general level of prices of goods and services in an economy over a period of time
inflation
deflation
devaluation
Inflation is usually measured by calculating the inflation rate of a price index, usually the . . .
Consumer Price Index
Saving Price Index
Interest Price Index
The Consumer Price Index measures . . . purchased by a "typical consumer"
prices of a selection of goods and services
the price of a good or service
neither is correct
In economics, . . . value refers to any price or value expressed in money of the day
nominal
real
proportional
. . . value adjusts for the effect of inflation.
Real
Nominal
Proportional
. . . values do not specify how much of the difference is from changes in the price level.
Nominal
Real
Proportional
Types of inflation:
Hyperinflation and moderate inflation
Deflation and inflation
Devaluation and revaluation
. . . is caused by an excessive growth of the money supply
Hyperinflation
Moderate inflation
Deflation
. . . may be attributed to fluctuations in real demand for goods and services, or changes in available supplies such as during scarcities, as well as to growth in the money supply
Moderate inflation
Hyperinflation
Deflation
. . . believe the most significant factor influencing inflation or deflation is the management of money supply through the easing or tightening of credit.
Monetarists
Keynesians
Classical economists
. . . consider fiscal policy, or government spending and taxation, as ineffective in controlling inflation.
Monetarists
Keynesians
Classical economists
The . . ., simply stated, says that the total amount of spending in an economy is primarily determined by the total amount of money in existence
quantity theory of money
quality theory of money
neither is correct
. . . economic theory proposes that changes in money supply do not directly affect prices, and that visible inflation is the result of pressures in the economy expressing themselves in prices. The supply of money is a major, but not the only, cause of inflation
Keynesian
Monetarist
Classical
Three major types of inflation:
Demand-pull inflation, cost-push inflation and built-in inflation
Demand-pull inflation, supply-pull inflation and built-in inflation
Demand-pull inflation, supply-pull inflation and built-on inflation
. . . inflation is caused by increases in aggregate demand due to increased private and government spending, etc
Demand-pull
Cost-push
Build-in
. . . inflation is constructive to a faster rate of economic growth since the excess demand and favourable market conditions will stimulate investment and expansion.
Demand
Cost
Built-in
. . . inflation is caused by a drop in aggregate supply (potential output). This may be due to natural disasters, or increased prices of inputs.
Cost-push
Demand-pull
Built-in
A sudden decrease in the supply of oil, leading to increased oil prices, can cause . . . inflation
cost-push
demand-pull
built-in
. . . inflation is induced by adaptative expectations, and is often linked to the “Price/wage spiral”. It involves workers trying to keep their wages up with prices (above the rate of inflation), and firms passing these higher labor costs on to their customers as higher prices, leading to a 'vicious circle'
Built-in
Demand-pull
Cost-push
. . . emphasize keeping the growth rate of money steady, and using monetary policy to control inflation (increasing interest rates, slowing the rise in the money supply).
Monetarists
Keynesians
Classics
. . . emphasize reducing aggregate demand during economic expansions and increasing demand during recessions to keep inflation stable. Control of aggregate demand can be achieved using both monetary policy and fiscal policy (increased taxation or reduced government spending to reduce demand).
Keynesians
Monetarists
Classics
Under a . . . exchange rate currency regime, a country's currency is tied in value to another single currency or to a basket of other currencies (or sometimes to another measure of value, such as gold).
fixed
floating
free
A . . . exchange rate is usually used to stabilize the value of a currency. It can also be used as a means to control inflation
fixed
floating
free
The inflation rate in the . . . exchange rate country is determined by the inflation rate of the country the currency is pegged to
fixed
floating
free
A . . . exchange rate prevents a government from using domestic monetary policy in order to achieve macroeconomic stability
fixed
floating
free
After the Bretton Woods agreement broke down in the early 1970s, countries gradually turned to . . . exchange rates
floating
fixed
free
In the later part of the 20th century, some countries reverted to a . . . exchange rate as part of an attempt to control inflation. This policy was used in many countries in South America in the later part of the 20th century (e.g. Argentina (1991-2002), Bolivia, Brazil, and Chile).
fixed
floating
free
Bretton Woods System eventually collapsed in 1971, which caused most countries to switch to . . . money
fiat
floating
fixed
. . . economists strongly favor a return to a 100 percent gold standard.
Austrian
Keynesian
Chicago
Under a . . ., the long term rate of inflation (or deflation) would be determined by the growth rate of the supply of gold relative to total output
gold standard
fixed exchange system
floating system
Critics argue that . . . will cause arbitrary fluctuations in the inflation rate, and that monetary policy would essentially be determined by gold mining, which some believe contributed to the Great Depression.
gold standard
fixed exchange system
floating exchange system
. . . controls have been successful in wartime environments in combination with rationing. However, their use in other contexts is far more mixed. Notable failures of their use include the 1972 imposition by Richard Nixon
Wage and price
Supply and demand
Floating and free
In general wage and price controls are regarded as a . . . measure
temporary
permanent
neither is correct
If the official price of bread is too low, there will be too little bread at official prices, and too little investment in bread making by the market to satisfy future needs, thereby exacerbating the problem in the . . . term
long
short
medium
In general the advice of economists is . . .
not to impose price controls
to impose price controls
neither is correct
A . . . adjusts salaries based on changes in a cost-of-living index. Salaries are typically adjusted annually
cost-of-living allowance
cost-of-living wage
cost-of living price
Many economists and compensation analysts consider the idea of predetermined future "cost of living increases" to be . . .
misleading
leading
neither is correct
For most recent periods in the industrialized world, average wages have increased . . . than most calculated cost-of-living indexes
faster
slower
the same
Most cost-of-living indexes . . . forward-looking
are not
are
neither is correct
The . . . system is the system that allows the transfer of money between savers and borrowers.
financial
banking
saving
The . . . system it's made up of banks, savings banks, insurance companies, the stock exchange, etc.
financial
banking
saving
The . . . is the central bank for Europe's single currency, the euro
European Central Bank
European System of Central Banks
Eurosystem
The . . . comprises the European Central Bank and the national central banks of all EU Member States whether they have adopted the euro or not.
European System of Central Banks
European Central Bank
Eurosystem
The . . . comprises the European Central Bank and the national central banks of those countries that have adopted the euro
Eurosystem
European System of Central Banks
European Central Bank
The . . . will co-exist as long as there are EU Member States outside the euro area.
Eurosystem and the European System of Central Banks
Eurosystem and the European Central Bank
European System of Central Banks and the European Central Bank
The primary objective of the European Central Bank is to maintain Price stability within the Eurozone, or in other words to keep inflation . . .
low
high
constant
The Governing Council defined price stability as inflation (Harmonised Index of Consumer Prices) of below, but close to, . . .%.
2
3
4
One of the key tasks of the European Central Bank is to define and implement the . . . policy for the Eurozone
monetary
fiscal
fiduciary
One of the key tasks of the European Central bank is to conduct . . . operations
foreign exchange
fiscal
fiduciary
One of the key tasks of the European Central Bank is to take care of the . . . reserves of the European System of Central Banks
foreign
domestic
huge
The . . . has the exclusive right to authorise the issuance of euro banknotes.
European Central Bank
European System of Central Banks
Eurosystem
Member states can issue euro coins but the amount must be authorised by the . . . beforehand
European Central Bank
European System of Central Banks
Eurosystem
In December . . . the European Central Bank decided in conjunction with the Federal Reserve under a program called Term auction facility to improve dollar liquidity in the eurozone and to stabilise the money market.
2007
2008
2006
. . . operations of commercial banks consist on to borrow money
Passive
Active
Neutral
. . . operations of commercial banks are: current accounts, saving accounts and deposits
Passive
Active
Neutral
. . . operations of commercial banks consist on to lend money
Active
Passive
Neutral
. . . operations of commercial banks are: loans, current account credits and bill of exchange discount
Active
Passive
Neutral
In . . . the user receives the entire agreed amount from the beginning, obliging him to return this and all interests on certain dates established beforehand
loans
current account credits
bill of exchange discount
In . . . the bank allows the client credit for a certain period of time and up to a determined amount, obliging the client to pay a commision and to repay the amounts desired within the stipulated time limit.
current account credits
loans
bill of exchange discount
A . . . is a corporation or mutual organization which provides "trading" facilities for stock brokers and traders, to trade stocks and other securities.
stock exchange
financial system
saving system
The . . . market is that part of the capital markets that deals with the issuance of new securities
primary
secondary
tertiary
The . . . market, also known as the aftermarket, is the financial market where previously issued securities and financial instruments such as stock, bonds, options, and futures are bought and sold
secondary
primary
tertiary
In the . . . market, securities are sold by and transferred from one investor or speculator to another
secondary
primary
tertiary
As a general rule, the greater the number of investors that participate in a given marketplace, and the greater the centralization of that marketplace, the . . . liquid the market
more
less
equal
Fundamentally, secondary markets mesh the investor's preference for . . . with the capital user's preference to be able to use the capital for an extended period of time
liquidity
profitability
productivity
Accurate share price allocates scarce capital more efficiently when new projects are financed through a new . . . market offering,
primary
secondary
tertiary
The . . . is the agency in charge of supervising and inspecting the Spanish Stock Markets and the activities of all the participants in those markets
Comisión Nacional del Mercado de Valores
Consejo Económico y Social
Consejo de Estado
. . . policy is the process by which the government, central bank, or monetary authority of a country controls (i) the supply of money, (ii) availability of money, and (iii) cost of money or rate of interest, in order to attain a set of objectives oriented towards the growth and stability of the economy
Monetary
Fiscal
Fiduciary
Where currency is under a monopoly of issuance, or where there is a regulated system of issuing currency through banks which are tied to a central bank, the . . . authority has the ability to alter the money supply and thus influence the interest rate (in order to achieve policy goals)
monetary
fiscal
fiduciary
The beginning of monetary policy as such comes from the late . . . century, where it was used to maintain the gold standard
19th
20th
18th
A policy is referred to as . . . if it reduces the size of the money supply or raises the interest rate
contractionary
expansionary
neutral
An . . . policy increases the size of the money supply, or decreases the interest rate
expansionary
contractionary
neutral
Monetary policies are described as . . ., if the interest rate set by the central monetary authority is intended to create economic growth
accommodative
neutral
tight
Monetary policies are described as . . ., if it is intended neither to create growth nor combat inflation;
neutral
accommodative
tight
Monetary policies are described as . . . if intended to reduce inflation
tight
accommodative
neutral
Increasing interest rates by fiat; reducing the monetary base; and increasing reserve requirements, all have the effect of . . . the Money supply
contracting
expand
rise
Decreasing interest rates by fiat; increasing the monetary base; and decreasing reserve requirements, all have the effect of . . . the Money supply
expand
contracting
slowing
Since the . . ., monetary policy has generally been formed separately from fiscal policy. Even prior to this decade, the Bretton Woods system still ensured that most nations would form the two policies separately
1970s
1980s
1960s
The primary tool of monetary policy is . . .. This entails managing the quantity of money in circulation through the buying and selling of various credit instruments, foreign currencies or commodities. All of these purchases or sales result in more or less base currency entering or leaving market circulation.
open market operations
reserve requirements
interest rates
Usually, the short term goal of open market operations is to achieve a specific short term . . . target. In other instances, monetary policy might instead entail the targeting of a specific exchange rate relative to some foreign currency or else relative to gold
interest rate
reserve requirements
reserve rate
Other primary means of conducting monetary policy is the . . . (lender of last resort);
discount window lending
fractional deposit lending
moral suasion
Other primary means of conducting monetary policy is the . . . (changes in the reserve requirement);
fractional deposit lending
discount window lending
moral suasion
Other primary means of conducting monetary policy is the . . . (cajoling certain market players to achieve specified outcomes);
moral suasion
open mouth operations
discount window lending
Other primary means of conducting monetary policy is . . . (talking monetary policy with the market).
open mouth operations
moral suasion
discount window lending
If an employee expects prices to be high in the future, he or she will draw up a wage contract with a . . . wage
high
low
normal
For many centuries there were only two forms of monetary policy: (i) Decisions about . . .; (ii) Decisions to print paper money to create credit
coinage
interest rate
exchange rate
For many centuries there were only two forms of monetary policy: (i) Decisions about coinage; (ii) Decisions to print paper money to create credit. . . ., while now thought of as part of monetary authority, were not generally coordinated with the other forms of monetary policy during this time.
Interest rates
Exchange rates
Reserve requirements
At the beginning, monetary policy was seen as an executive decision, and was generally in the hands of the authority with seigniorage, or the power to . . .
coin
make laws
finance
With the advent of . . . came the ability to set the price between gold and silver, and the price of the local currency to foreign currencies. This official price could be enforced by law, even if it varied from the market price.
larger trading networks
Midle Ages
feudalism
With the creation of the Bank of . . . in 1694, which acquired the responsibility to print notes and back them with gold, the idea of monetary policy as independent of executive action began to be established
England
France
Netherlands
. . . macroeconomists have sometimes advocated simply increasing the monetary supply at a low, constant rate, as the best way of maintaining low inflation and stable output growth
Monetarist
Keynesian
Classical
A central bank can only operate a truly independent monetary policy when the Exchange rate is . . .
floating
pegged
managed
If the exchange rate is pegged or managed in any way, the central bank will have to purchase or sell . . .
foreign exchange
goods and services
commodities
Transactions in foreign exchange will have an effect on the monetary base analogous to open market purchases and sales of government debt; if the central bank buys foreign exchange, the monetary base . . ., and vice versa.
expands
contracts
doesn't move
If a central bank buys foreign exchange (to counteract appreciation of the exchange rate), base money will increase. Therefore, to sterilize that increase, the central bank must also . . . government debt to contract the monetary base by an equal amount
sell
buy
remove
In the . . ., many economists began to believe that making a nation's central bank independent of the rest of executive government is the best way to ensure an optimal monetary policy, and those central banks which did not have independence began to gain it
1980s
1960s
1970s
Few . . . countries have deep markets in government debt.
developing
poor
planning
Under . . . approach the target is to keep inflation, under a particular definition such as Consumer Price index, within a desired range
inflation targeting
price level targeting
fixed exchange rate
. . . is similar to inflation targeting except that CPI growth in one year is offset in subsequent years such that over time the price level on aggregate does not move
Price level targeting
Inflation targeting
Fixed exchange rate
Something similar to price level targeting was tried by . . . in the 1930s, and seems to have contributed to the relatively good performance of the Swedish economy during the Great Depression. As of 2004, no country operates monetary policy based on a price level target.
Sweden
England
Netherlands
The fixed exchange rate with a fixed level can be seen as a special case of the fixed exchange rate with bands where the bands are set to . . .
zero
one
two
Under a system of fixed exchange rates maintained by a . . . every unit of local currency must be backed by a unit of foreign currency (correcting for the exchange rate). This ensures that the local monetary base does not inflate without being backed by hard currency and eliminates any worries about a run on the local currency by those wishing to convert the local currency to the hard (anchor) currency
currency board
currency head
currency state
Under . . ., foreign currency is used freely as the medium of exchange either exclusively or in parallel with local currency. This outcome can come about because the local population has lost all faith in the local currency, or it may also be a policy of the government (usually to rein in inflation and import credible monetary policy).
dollarization
fixed exchange system
floating exchange system
Some policies often abdicate monetary policy to the foreign monetary authority or government as monetary policy in the . . . nation must align with monetary policy in the anchor nation to maintain the exchange rate. The degree to which local monetary policy becomes dependent on the anchor nation depends on factors such as capital mobility, openness, credit channels and other economic factors
pegging
dependent
independent
The gold standard might be regarded as a special case of the ". . . Exchange Rate" policy
Fixed
Floating
Free
The gold price might be regarded as a special type of "Commodity Price . . .".
Index
Rate
Control
Today gold standard policy is not used anywhere in the world, apart from . . . (one of the world's most stable economies), although a form of gold standard was used widely across the world prior to 1971
Switzerland
U.S.A.
United Kingdom
Calculate the real GDP of 2008 over the course of 2007 if the nominal GDP was 80,000 and the CPI was 110%.
72,727.27
88,000
85.678,75
Calculate the nominal GDP of 2008 over the course of 2007 if the real GDP was 170,000 and the CPI was 180%.