Money: Monetary policy - Question Bank

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Question Bank - Economics

Money: Monetary policy

Q1. An example of an expansionary monetary policy is (Select one answer) (a) an increase in the required reserve ratio. (b) an increase in the discount rate. (c) a reduction in the taxes banks pay on their profits. (d) the Central bank buying government securities in the open market.

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Q2. By 'Controlling the monetary base' economists mean (Select one answer) (a) controlling the money multiplier (b) making banks keep a certain % of their assets as M0 (c) not allowing commercial banks to issue notes and coins (d) restricting the amount of cash in circulation

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Q3. A very competitive banking sector makes the role of the Bank of England _______ because __________ (Select one answer) (a) easier, competition means more money is lent at sensible interest rates (b) easier, competition means banks have large reserves and are stable (c) harder, competition means banks have smaller reserves and are easier to control (d) harder, competition means banks have smaller reserves and are less stable

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Q4. Under New Classical macroeconomics monetary policy (Select one answer) (a) affects the level of equilibrium output (b) affects the composition of equilibrium output (c) affects both the level and composition of equilibrium output (d) none of the above

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Q5. By 'financial crowding out' economists mean (Select one answer) (a) Bank of England controls on commercial bank lending (b) credit rationing (c) government borrowing drives up interest rates (d) what the government borrows cannot be used for private investment

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Q6. If a commercial bank meets its 15 per cent requirement by depositing £100,000 with the Central Bank, (Select one answer) (a) total deposit liabilities of the bank are £15,000 (b) total deposit liabilities are £666,666 (c) there is no way to tell what deposit liabilities are (d) deposit liabilities are £150,000

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Q7. Suppose that the required reserve ratio is 15% and a cheque for £10,000 is drawn and cleared against the Bank of Stapleton. The immediate effect of the transaction is to reduce: (Select one answer) (a) demand deposits by £10,000 and reserves by £10,000 (b) demand deposits by £1,500 and reserves by £1,500 (c) demand deposits by £10,000 and reserves by £1,500 (d) demand deposits by £10,000 and no effect on reserves

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Q9. If the Central bank tries to keep the interest rate constant when the economy is operating on the steep part of the AS curve, ________ will occur. (Select one answer) (a) a recession (b) a depression (c) a hyperinflation (d) stagflation

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Q10. Suppose that the Bank of England enters the open market and purchases £15 million of government bonds from the general public. This purchase will (Select one answer) (a) eventually increase the banking system's reserves, the monetary base, and the system's lending capacity (b) eventually cause a decrease in the price of bonds on the market (c) cause bank reserves to decline, the monetary base to fall, and the banking system's lending capacity to decline (d) eventually limit the size of the money multiplier

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Q11. The quantity theory of money implies that a given percentage change in the money supply will cause (Select one answer) (a) an equal percentage change in nominal GDP. (b) a smaller percentage change in nominal GDP. (c) a larger percentage change in nominal GDP. (d) an equal percentage change in real GDP.

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