Question 1

What are the two main functions of central banks?

Accepted Answer

Most central banks have two main functions; macroeconomic stability is the maintenance of stable growth and prices and the avoidance of excessive and damaging swings in economic activity. The second main function is the maintenance of stability in the financial system. To achieve the first function, central banks have the power to increase or decrease the amount of currency in that economy. The set of actions taken by the central bank in order to affect the money supply is known as monetary policy.

Question 2

A central bank is designed to regulate the quantity of money made available in the economy. This is called the

Accepted Answer

A)   money supply.
B)   gold standard.
C)   stock assets.
D)   bonds.E) B) and C)
F) C) and D)

Question 3

An example of fiat money is

Accepted Answer

A)   paper euros.
B)   gold.
C)   silver coins.
D)   cigarettes.E) A) and B)
F) A) and C)

Question 4

Commodity money

Accepted Answer

A)   has no intrinsic value.
B)   has intrinsic value.
C)   is used exclusively in the economies of western Europe and North America.
D)   is used as reserves to back fiat money.E) B) and C)
F) A) and D) B

Question 5

Which of the following would NOT be used by a central bank to influence interest rates in the economy?

Accepted Answer

A)   Selling government bonds
B)   Buying shares
C)   Setting reserve requirements
D)   Changing the refinancing rateE) B) and C)
F) All of the above

Question 6

In 1997, the UK government granted the Bank of England independence in the setting of

Accepted Answer

A)   share prices
B)   the exchange rate
C)   the money supply
D)   interest ratesE) B) and D)
F) A) and D)

Question 7

What is the refinancing rate?

Accepted Answer

The central bank of an economy will set ...

Question 8

What is the difference between money and wealth?

Accepted Answer

Money is defined as the set of...

Question 9

Are credit cards and debit cards money? What is the difference between credit cards and debit cards?

Accepted Answer

Neither credit cards nor debit cards are...

Question 10

What is the difference between the average interest banks earn on assets and the average interest rate paid on liabilities?

Accepted Answer

A)   spread
B)   loss
C)   gain
D)   changeE) B) and D)
F) None of the above

Question 11

Discuss the constraints on bank lending.

Accepted Answer

Banks create money by lending, but a num...

Question 12

If a society chooses to use fiat money, it

Accepted Answer

A)   must guarantee the convertibility of its currency into gold.
B)   give its central bank independence.
C)   cannot make use of a banking system.
D)   must have a mechanism for regulating the quantity of money in the economy.E) C) and D)
F) B) and C)

Question 13

What is the name of the policy designed to limit the risks across the financial sector by focusing on improving 'prudential' standards of operation that enhance stability and reduce risk?

Accepted Answer

A)   governance
B)   compliance
C)   systemic policy
D)   macroprudential policyE) All of the above
F) A) and B)

Question 14

Wealth held in ______________ is almost as convenient for buying things as wealth held as cash.

Accepted Answer

A)   savings accounts
B)   stock options
C)   trading accounts
D)   current bank accountsE) All of the above
F) B) and D)

Question 15

Which of the following statements about money is not true?

Accepted Answer

A)   A debit card is not really money because it is only a means of transferring money between accounts.
B)   All the wealth that people hold, in whatever form, should be considered as money.
C)   Wealth held in the current account you hold with your bank is almost as convenient for buying things as wealth held in your wallet, so the wealth in current accounts should be included in measures of money.
D)   In a complex economy it is not easy to draw a clear dividing line between assets that should be considered as money and those that should not.E) B) and C)
F) None of the above

Question 16

Which one of the following statements is NOT correct?

Accepted Answer

A)   A repurchase agreement is the sale of a non-monetary asset together with an agreement to repurchase it at a specified future date.
B)   The difference between the price at which a commercial bank sells an asset to the central bank and the price at which it agrees to buy it back can be expressed as an annualized percentage of the selling price, and this is called the refinancing rate.
C)   In the UK the refinancing rate is known as the repo rate.
D)   If the central bank raises its refinancing rate then the commercial banks will try to increase their lending.E) B) and C)
F) None of the above

Question 17

Economists argue that the move from barter to money increased trade and production. How is this possible?

Accepted Answer

The use of money allows people...

Question 18

Which of the following statements is NOT true?

Accepted Answer

A)   The purchase of government bonds from the public increases the money supply.
B)   Monetary policy in the euro area is set by the Governing Council of the European Central Bank.
C)   When the central bank sells government bonds to the public, the money supply decreases.
D)   Monetary policy in the UK is set by the Chancellor of the Exchequer in consultation with the Bank of England.E) All of the above
F) B) and C)

Question 19

Commodity money has value independent of its use as money.

Accepted Answer

A) True 
 B)False  True

Question 20

If there is 100 per cent reserve banking, the money supply is unaffected by the proportion of its money that the public chooses to hold as currency rather than as bank deposits.

Accepted Answer

A) True 
 B)False

Exam 27: The Monetary System

What are the two main functions of central banks?

A central bank is designed to regulate the quantity of money made available in the economy. This is called the

Correct Answer
verified

An example of fiat money is

Correct Answer
verified

Commodity money

Correct Answer
verified
B

Which of the following would NOT be used by a central bank to influence interest rates in the economy?

Correct Answer
verified

In 1997, the UK government granted the Bank of England independence in the setting of

Correct Answer
verified

What is the refinancing rate?

Correct Answer
verified
The central bank of an economy will set ...
View Answer

What is the difference between money and wealth?

Correct Answer
verified
Money is defined as the set of...
View Answer

Are credit cards and debit cards money? What is the difference between credit cards and debit cards?

Correct Answer
verified
Neither credit cards nor debit cards are...
View Answer

What is the difference between the average interest banks earn on assets and the average interest rate paid on liabilities?

Correct Answer
verified

Discuss the constraints on bank lending.

Correct Answer
verified
Banks create money by lending, but a num...
View Answer

If a society chooses to use fiat money, it

Correct Answer
verified

What is the name of the policy designed to limit the risks across the financial sector by focusing on improving 'prudential' standards of operation that enhance stability and reduce risk?

Correct Answer
verified

Wealth held in ______________ is almost as convenient for buying things as wealth held as cash.

Correct Answer
verified

Which of the following statements about money is not true?

Correct Answer
verified

Which one of the following statements is NOT correct?

Correct Answer
verified

Economists argue that the move from barter to money increased trade and production. How is this possible?

Correct Answer
verified
The use of money allows people...
View Answer

Which of the following statements is NOT true?

Correct Answer
verified

Commodity money has value independent of its use as money.

Correct Answer
verified
True

If there is 100 per cent reserve banking, the money supply is unaffected by the proportion of its money that the public chooses to hold as currency rather than as bank deposits.

Correct Answer
verified

Exam 27: The Monetary System

What are the two main functions of central banks?

A central bank is designed to regulate the quantity of money made available in the economy. This is called the

Correct AnswerverifiedShow Answer

An example of fiat money is

Correct AnswerverifiedShow Answer

Commodity money

Correct AnswerverifiedB

Which of the following would NOT be used by a central bank to influence interest rates in the economy?

Correct AnswerverifiedShow Answer

In 1997, the UK government granted the Bank of England independence in the setting of

Correct AnswerverifiedShow Answer

What is the refinancing rate?

Correct AnswerverifiedThe central bank of an economy will set ...View AnswerShow Answer

What is the difference between money and wealth?

Correct AnswerverifiedMoney is defined as the set of...View AnswerShow Answer

Are credit cards and debit cards money? What is the difference between credit cards and debit cards?

Correct AnswerverifiedNeither credit cards nor debit cards are...View AnswerShow Answer

What is the difference between the average interest banks earn on assets and the average interest rate paid on liabilities?

Correct AnswerverifiedShow Answer

Discuss the constraints on bank lending.

Correct AnswerverifiedBanks create money by lending, but a num...View AnswerShow Answer

If a society chooses to use fiat money, it

Correct AnswerverifiedShow Answer

What is the name of the policy designed to limit the risks across the financial sector by focusing on improving 'prudential' standards of operation that enhance stability and reduce risk?

Correct AnswerverifiedShow Answer

Wealth held in ______________ is almost as convenient for buying things as wealth held as cash.

Correct AnswerverifiedShow Answer

Which of the following statements about money is not true?

Correct AnswerverifiedShow Answer

Which one of the following statements is NOT correct?

Correct AnswerverifiedShow Answer

Economists argue that the move from barter to money increased trade and production. How is this possible?

Correct AnswerverifiedThe use of money allows people...View AnswerShow Answer

Which of the following statements is NOT true?

Correct AnswerverifiedShow Answer

Commodity money has value independent of its use as money.

Correct AnswerverifiedTrue

If there is 100 per cent reserve banking, the money supply is unaffected by the proportion of its money that the public chooses to hold as currency rather than as bank deposits.

Correct AnswerverifiedShow Answer

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B

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The central bank of an economy will set ...
View Answer

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Money is defined as the set of...
View Answer

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verified
Neither credit cards nor debit cards are...
View Answer

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verified

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Banks create money by lending, but a num...
View Answer

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The use of money allows people...
View Answer

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True

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