The Supply of Money

Description: This quiz is designed to assess your understanding of the concept of money supply, its components, and the factors that influence it.
Number of Questions: 15
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Tags: money supply central bank monetary policy
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Which of the following is not a component of the money supply?

  1. Currency in circulation

  2. Demand deposits

  3. Time deposits

  4. Savings deposits


Correct Option: C
Explanation:

Time deposits are not considered part of the money supply because they are not immediately available for spending.

The central bank of a country is responsible for:

  1. Setting interest rates

  2. Printing money

  3. Regulating banks

  4. All of the above


Correct Option: D
Explanation:

The central bank is responsible for managing the country's monetary policy, which includes setting interest rates, printing money, and regulating banks.

Which of the following is an example of an expansionary monetary policy?

  1. Increasing the reserve requirement

  2. Selling government bonds

  3. Raising interest rates

  4. Lowering interest rates


Correct Option: D
Explanation:

Lowering interest rates is an expansionary monetary policy because it makes it cheaper for businesses and consumers to borrow money, which can stimulate economic growth.

What is the main purpose of open market operations?

  1. To control the money supply

  2. To influence interest rates

  3. To stabilize the exchange rate

  4. To manage the government's debt


Correct Option: A
Explanation:

Open market operations are used by the central bank to control the money supply by buying or selling government bonds.

Which of the following is not a factor that can affect the demand for money?

  1. The level of economic activity

  2. The rate of inflation

  3. The interest rate

  4. The price level


Correct Option: D
Explanation:

The price level is not a factor that can affect the demand for money because it is already incorporated into the other factors, such as the level of economic activity and the rate of inflation.

What is the relationship between the money supply and the price level?

  1. A positive relationship

  2. A negative relationship

  3. No relationship

  4. It depends on the economic conditions


Correct Option: A
Explanation:

There is a positive relationship between the money supply and the price level, known as the quantity theory of money. As the money supply increases, the price level tends to rise, and vice versa.

Which of the following is not a type of money?

  1. Commodity money

  2. Fiat money

  3. Representative money

  4. Credit money


Correct Option: D
Explanation:

Credit money is not a type of money because it is not a generally accepted medium of exchange. It is a form of debt that can be used to purchase goods and services.

What is the main function of a central bank?

  1. To regulate the banking system

  2. To manage the government's fiscal policy

  3. To control the money supply

  4. To set interest rates


Correct Option: C
Explanation:

The main function of a central bank is to control the money supply in order to achieve economic stability.

What is the difference between money supply and money demand?

  1. Money supply is the amount of money in circulation, while money demand is the amount of money people want to hold.

  2. Money supply is the amount of money created by the central bank, while money demand is the amount of money people actually use.

  3. Money supply is the amount of money in the economy, while money demand is the amount of money people need to conduct transactions.

  4. Money supply is the amount of money in the banking system, while money demand is the amount of money people have in their wallets.


Correct Option: A
Explanation:

Money supply is the amount of money in circulation, which is created by the central bank and held by banks and the public. Money demand is the amount of money people want to hold for various purposes, such as transactions, savings, and investments.

Which of the following is not a factor that can affect the supply of money?

  1. The central bank's monetary policy

  2. The level of economic activity

  3. The demand for money

  4. The price level


Correct Option: D
Explanation:

The price level is not a factor that can affect the supply of money because it is already incorporated into the other factors, such as the central bank's monetary policy and the level of economic activity.

What is the relationship between the central bank's discount rate and the money supply?

  1. A positive relationship

  2. A negative relationship

  3. No relationship

  4. It depends on the economic conditions


Correct Option: B
Explanation:

There is a negative relationship between the central bank's discount rate and the money supply. When the discount rate is increased, it becomes more expensive for banks to borrow money from the central bank, which reduces the money supply. Conversely, when the discount rate is decreased, it becomes cheaper for banks to borrow money, which increases the money supply.

Which of the following is not a component of the monetary base?

  1. Currency in circulation

  2. Demand deposits

  3. Reserve deposits

  4. Excess reserves


Correct Option: B
Explanation:

Demand deposits are not a component of the monetary base because they are not held by the central bank. The monetary base consists of currency in circulation, reserve deposits, and excess reserves.

What is the main purpose of reserve requirements?

  1. To control the money supply

  2. To ensure that banks have enough money to meet their obligations

  3. To discourage banks from making risky loans

  4. All of the above


Correct Option: D
Explanation:

Reserve requirements serve multiple purposes, including controlling the money supply, ensuring that banks have enough money to meet their obligations, and discouraging banks from making risky loans.

Which of the following is not a type of open market operation?

  1. Buying government bonds

  2. Selling government bonds

  3. Repurchase agreements

  4. Reverse repurchase agreements


Correct Option: C
Explanation:

Repurchase agreements are not a type of open market operation because they are not conducted by the central bank. Repurchase agreements are private transactions between banks and other financial institutions.

What is the main purpose of quantitative easing?

  1. To increase the money supply

  2. To lower interest rates

  3. To stimulate economic growth

  4. All of the above


Correct Option: D
Explanation:

Quantitative easing is a monetary policy tool used by central banks to increase the money supply, lower interest rates, and stimulate economic growth.

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