Question 1

A decrease in the discount rate may increase the rate of growth of the money supply.

Accepted Answer

A) True 
 B)False  TRUE

Question 2

Which of the following describes a repo?

Accepted Answer

A)  Where a bank sells assets to person or institution A in return for buying assets from person or institution B 
B)  Where a bank sells some assets (e.g. bonds) and agrees to buy them back at a particular price after a set period of time 
C)  Where bank A lends to bank B provided that bank B is prepared to lend to bank A in the future 
D)  Where a bank agrees to buy certain assets from an institution for cash in return for being able to borrow from that institution in the future 
E)  All of the above 
A)  Where a bank sells assets to person or institution A in return for buying assets from person or institution B 
B)  Where a bank sells some assets (e.g. bonds) and agrees to buy them back at a particular price after a set period of time 
C)  Where bank A lends to bank B provided that bank B is prepared to lend to bank A in the future 
D)  Where a bank agrees to buy certain assets from an institution for cash in return for being able to borrow from that institution in the future 
E)  All of the above B

Question 3

What problems are involved in controlling the money supply?

Accepted Answer

Probably the most difficult part is deciding what to control. A strict definition of what constitutes money as it is used has proved to be elusive. We might begin by thinking about coins and notes and then remember that a lot of funds are lying in bank accounts and building society accounts. Many people have the funds they can call on to use as money, so it becomes difficult to define what is to be controlled.

Question 4

Which of the following defines a certificate of deposit?

Accepted Answer

A)  An agreement between two financial institutions whereby one essentially borrows or lends to the other 
B)  Certificates issued by banks for fixed- term interest- bearing deposits 
C)  Deposits that can be withdrawn on demand, with no penalty 
D)  Deposits that require notice for withdrawal 
A)  An agreement between two financial institutions whereby one essentially borrows or lends to the other 
B)  Certificates issued by banks for fixed- term interest- bearing deposits 
C)  Deposits that can be withdrawn on demand, with no penalty 
D)  Deposits that require notice for withdrawal

Question 5

Money supply growth is related to credit creation, so how is credit created?

Accepted Answer

Banks are in business to make a profit.

Question 6

Risk- weighted assets are the total value of assets, where each type of asset is multiplied by a risk factor.

Accepted Answer

A) True 
 B)False

Question 7

The money market is the market for short- term loans and deposits.

Accepted Answer

A) True 
 B)False

Question 8

An increase in aggregate output causes the demand for money to______and the interest rate to______

Accepted Answer

A)  decrease; increase 
B)  increase; decrease 
C)  decrease; decrease 
D)  increase; increase 
A)  decrease; increase 
B)  increase; decrease 
C)  decrease; decrease 
D)  increase; increase

Question 9

Which of the following would shift the demand for money curve to the right?

Accepted Answer

A)  A fall in national income 
B)  A rise in national income 
C)  Financial innovation 
D)  A fall in the interest rate 
A)  A fall in national income 
B)  A rise in national income 
C)  Financial innovation 
D)  A fall in the interest rate

Question 10

If the amount of money demanded by households and firms is greater than the amount in circulation as determined by the Bank of England

Accepted Answer

A)  the interest rate will decrease. 
B)  the money supply will increase. 
C)  the interest rate will increase. 
D)  the money supply will decrease. 
A)  the interest rate will decrease. 
B)  the money supply will increase. 
C)  the interest rate will increase. 
D)  the money supply will decrease.

Question 11

Which of the following is not a demand for money?

Accepted Answer

A)  Transactions motive 
B)  Goods motive 
C)  Speculative motive 
D)  Precautionary motive 
A)  Transactions motive 
B)  Goods motive 
C)  Speculative motive 
D)  Precautionary motive

Question 12

An increase in the demand for money, combined with sales of government securities to the public, will tend to raise interest rates.

Accepted Answer

A) True 
 B)False

Question 13

Explain the difference between narrow and broad money.

Accepted Answer

Narrow money consists of money itself, a

Question 14

Explain what is meant by secondary marketing.

Accepted Answer

Secondary marketing is where assets are

Question 15

Broad money is cash in circulation minus retail and whole sale bank and building society deposits.

Accepted Answer

A) True 
 B)False

Question 16

Money demand is a function of all the following variables except the

Accepted Answer

A)  the frequency with which people are paid. 
B)  speculation about future asset prices. 
C)  nominal national income. 
D)  interest rate. 
E)  all of the above 
A)  the frequency with which people are paid. 
B)  speculation about future asset prices. 
C)  nominal national income. 
D)  interest rate. 
E)  all of the above

Question 17

Which of the following defines secondary marketing?

Accepted Answer

A)  Where assets are sold before maturity to another institution or individual 
B)  A specific type of loan for a long- term marketing campaign 
C)  The way in which banks market their various loan deals to big businesses 
D)  The proportion of a bank's total assets held in liquid form 
A)  Where assets are sold before maturity to another institution or individual 
B)  A specific type of loan for a long- term marketing campaign 
C)  The way in which banks market their various loan deals to big businesses 
D)  The proportion of a bank's total assets held in liquid form

Question 18

Discuss the three- pronged rescue plan of the Bank of England for rescuing the banking system in October 2008.

Accepted Answer

1) Extra capital: A total of up to £50 b

Question 19

A time deposit in a bank is considered ____________of that bank.

Accepted Answer

A)  an asset 
B)  an investment 
C)  a liability 
D)  capital 
A)  an asset 
B)  an investment 
C)  a liability 
D)  capital

Question 20

If banks decide to hold a lower liquidity ratio, what effect will this have on the bank multiplier? Why is this the case?

Accepted Answer

If banks decide to hold a lowe

Exam 28: Banking, Money and Interest Rates

A decrease in the discount rate may increase the rate of growth of the money supply.

Which of the following describes a repo?

What problems are involved in controlling the money supply?

Which of the following defines a certificate of deposit?

Money supply growth is related to credit creation, so how is credit created?

Risk- weighted assets are the total value of assets, where each type of asset is multiplied by a risk factor.

The money market is the market for short- term loans and deposits.

An increase in aggregate output causes the demand for money to______and the interest rate to______

Which of the following would shift the demand for money curve to the right?

If the amount of money demanded by households and firms is greater than the amount in circulation as determined by the Bank of England

Which of the following is not a demand for money?

An increase in the demand for money, combined with sales of government securities to the public, will tend to raise interest rates.

Explain the difference between narrow and broad money.

Explain what is meant by secondary marketing.

Broad money is cash in circulation minus retail and whole sale bank and building society deposits.

Money demand is a function of all the following variables except the

Which of the following defines secondary marketing?

Discuss the three- pronged rescue plan of the Bank of England for rescuing the banking system in October 2008.

A time deposit in a bank is considered ____________of that bank.

If banks decide to hold a lower liquidity ratio, what effect will this have on the bank multiplier? Why is this the case?

The Business Environment and Business Economics

Economics and the World of Business

Business Organisations

The Working of Competitive Markets

Business in a Market Environment

Demand and the Consumer

Demand and the Firm

Products, Marketing and Advertising

Costs of Production

Revenue and Profit

Profit Maximisation Under Perfect Competition and Monopoly

Profit Maximisation Under Imperfect Competition

An Introduction to Business Strategy

Alternative Theories of the Firm

Growth Strategy

The Small-Firm Sector

Pricing Strategy

Labour Markets, Wages and Industrial Relations

Investment and the Employment of Capital

Reasons for Government Intervention in the Market

Government and the Firm

Government and the Market

Globalisation and Multinational Business

International Trade

Trading Blocs

The Macroeconomic Environment of Business

The Balance of Payments and Exchange Rates

Business Activity, Employment and Inflation

Demand-Side Policy

Supply-Side Policy

International Economic Policy

Filters

An increase in aggregate output causes the demand for money toand the interest rate to