Money: Money markets - Question Bank

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Question Bank - Economics

Money: Money markets

Q1. Other things constant, if the anticipated rate of inflation rises, we would expect the nominal interest rate to (Select one answer) (a) remain unchanged (b) rise by the same amount as the increase in the anticipated rate of inflation (c) fall by the same amount as the increase in the anticipated rate of inflation (d) rise, but by less than the anticipated increase in the rate of inflation

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Q2. The interest rate (Select one answer) (a) is determined in the money market and has no influence on the goods market. (b) is determined in the goods market and has no influence on the money market. (c) is determined in the money market and influences the level of planned investment and thus the goods market. (d) is determined in the goods market and influences the level of planned investment and thus the money market.

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Q3. Other things constant, a decrease in the supply of money balances with a given money demand results in (Select one answer) (a) a reduction in the equilibrium interest rate and an increase in the equilibrium quantity of money balances held (b) an increase in the equilibrium interest rate and a reduction in the equilibrium quantity of money balances held (c) no change in the equilibrium interest rate but a decrease in the equilibrium quantity of money balances held (d) an increase in the equilibrium interest rate but no change in the equilibrium quantity of money balances held

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Q4. In terms of the demand for money, the interest rate represents (Select one answer) (a) the price of borrowing money. (b) the return on money that is saved for the future. (c) the rate at which current consumption can be exchanged for future consumption. (d) the opportunity cost of holding money.

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