MEcon Master of Economics

FREE Master of Economics: Money, Banks, and Interest Rates Questions and Answers

Which of the following claims regarding bank money generation is untrue?

A bank creates money when it buys securities.

Unless the authorities intervened, there is no limit to how much money banks would be willing to create.

The increase in deposits that can occur when banks get £1 million extra reserves is greater than £1 million.

A bank creates money when it writes a higher number against the deposit of a depositor who wants an advance.

Correct! Wrong!

Banks do not want this ratio to drop below a level they deem prudent since the more money they produce, the lower the ratio of their reserves to deposits gets.

Suppose the multiplier is four and the first increase in projected investment is £100 billion annually. Which of the subsequent claims is untrue?

The IS curve will shift to the right by less than £400 billion a year.

By ignoring the fact that a rise in output will lead to higher interest rates, the multiplier model will predict that the planned expenditure line will end up £100 billion a year higher than it started.

By ignoring the fact that a rise in output will lead to higher interest rates, the multiplier model will predict a rise in output of £400 billion a year.

By allowing for the fact that a rise in output will lead to higher interest rates, the IS-LM model will predict a rise in output of less than £400 billion a year.

Correct! Wrong!

By £400 billion annually, the IS curve will veer to the right.

Which of the aforementioned claims regarding the IS curve is untrue?

An increase in exports will shift IS to the right.

A fall in the interest rate will shift IS to the right.

It shows that the lower is the interest rate, the higher is the equilibrium level of output.

The more responsive planned spending is to changes in the interest rate, the more interest elastic is the IS curve.

Correct! Wrong!

The economy is moved to a lower point on the IS curve but not moved by a decline in interest rates.

Which of the LM curve's following claims is untrue?

It shows that the higher is the level of output, the higher is the equilibrium rate of interest.

The more interest elastic is the demand for money, the more interest elastic is the LM curve.

An increase in the supply of money curve will shift LM right.

An increase in the demand for money will shift LM right.

Correct! Wrong!

A leftward shift in LM is the outcome of increased interest rates at each level of output due to an increase in the demand for money.

Assume banks want a 4% ratio of reserves to deposits. And let's assume that the general public wants a 2% cash-to-deposit ratio. Which of the following statements is true?

1. The bank deposit multiplier is 25.
2. The money multiplier is 17.

1 only.

2 only.

Both 1 and 2.

Neither 1 nor 2.

Correct! Wrong!

In comparison to d, which is 2 or 2/100, or 0.02, r is 4%, or 4/100. The multiplier for bank deposits is 1/r, or 25 or 1/0.04. The multiplier for money is (1+d)/(r+d), or 1.02/0.06 or 17.

Which of the subsequent would result in a bank losing reserves?

One of the bank's depositors pays out a cheque to a depositor of another bank.

The bank raises the interest rate it pays on deposits.

One of the bank's depositors makes an internet payment to another of its depositors.

One of the bank's depositors pays out a cheque to another of its depositors.

Correct! Wrong!

In this scenario, the bank is required to transfer reserves to the bank of the recipient of the check.

Which of the following would not cause a rightward change in the money demand curve?

A rise in wealth.

A rise in incomes.

A fall in the interest rate.

A move which means that all workers who were in the past paid weekly will in future be paid monthly.

Correct! Wrong!

A motion along the money demand curve, not a shift of the curve, illustrates the impact of a change in interest rates on the amount of money demanded.

FREE Master of Economics: Money, Banks, and Interest Rates Questions and Answers

Which of the following claims regarding bank money generation is untrue?

Suppose the multiplier is four and the first increase in projected investment is £100 billion annually. Which of the subsequent claims is untrue?

Which of the aforementioned claims regarding the IS curve is untrue?

Which of the LM curve's following claims is untrue?

Assume banks want a 4% ratio of reserves to deposits. And let's assume that the general public wants a 2% cash-to-deposit ratio. Which of the following statements is true? 1. The bank deposit multiplier is 25. 2. The money multiplier is 17.

Which of the subsequent would result in a bank losing reserves?

Which of the following would not cause a rightward change in the money demand curve?

Related Post

Assume banks want a 4% ratio of reserves to deposits. And let's assume that the general public wants a 2% cash-to-deposit ratio. Which of the following statements is true?

1. The bank deposit multiplier is 25.
2. The money multiplier is 17.