One of the functions of money is to act as a measure of value. What does this mean?
Money allows people to borrow and lend.
Money allows people to save their surplus income.
Money is used to buy goods and services.
Money is used to compare the worth of and services.
What is not a function of money?
medium of exchange
portability
store of value
unit of account
An African government has abandoned its own dollar and now uses the US dollar as its currency. Why would such a policy have been necessary?
Commercial banks restricted their lending.
Consumers only used credit cards rather than paper money.
Its own dollar no longer acted as a store of value.
The central bank controlled the issue of money too tightly.
What is the most important characteristic of money?
It has intrinsic value.
It is generally acceptable
It is portable.
It is readily available.
Which advantage do coins have that make them more suitable than banknotes to act as money?
They are more divisible.
They are more durable.
They are more portable.
They are more recognisable.
What would be least likely to act as a store of value during a period of rapid inflation?
cash
gold
property
shares
Which row shows a characteristic of money and a function of money?
A
B
C
D
It is expected that consumers will use less paper money. What is the most likely reason for this?
Inflation reduces the value of paper money.
More ways of making payments will be available.
Other forms of money are more durable.
Paper money will have less intrinsic value.
Which function does a central bank provide for the general public?
accepting deposits
issuing banknotes
making loans
providing overdrafts
What is an important role of a central bank?
attempts to achieve price stability
issues credit cards
provides loans to producers
provides savings accounts for consumers
When will a central bank act as lender of last resort to a commercial bank?
when a commercial bank faces a liquidity crisis
when a commercial bank fails to make a profit
when a commercial bank needs to raise share capital
when a commercial bank reduces its lending rates
What is not normally a function of the central bank of a country?
acting as lender of last resort
issuing notes and coins
operating the government’s monetary policy
setting the government’s budget
What is a function of commercial banks?
accept deposits and savings
lender of last resort to government
manage the national debt
operate monetary policy
Which organisations can directly fund the growth of firms?
A
B
C
D
What is an advantage to a country of having an efficient commercial banking system?
It controls the money supply.
It discourages spending.
It encourages tax evasion.
It enables investment.
What is the money supply?
the total quantity of foreign currency available within the economy
the total quantity of money available within the economy
the total quantity of money issued by the central bank
the total quantity of money within commercial banks
What is a monetary policy measure?
increasing the interest rates
increasing taxation
reducing the power of trade unions
selling state-owned enterprises
What is an example of monetary policy?
an increase in government spending
an increase in indirect taxation
an increase in rules and regulations
an increase in the money supply
Which change is an example of monetary policy?
a depreciation of the foreign exchange rate
a reduction of unemployment benefits
an increased import tax
the introduction of import quotas
What is the definition of foreign exchange rate?
the difference between emigration and immigration
the difference between the values of imports and exports
the price of one currency in terms of another
the price of one good in terms of another
Interest rates are sometimes raised to control inflation. Why might this policy be effective?
Consumers may save more.
Government spending may increase.
Investment may be encouraged.
The exchange rate may fall.
What is the link between a change in the interest rate and investment?
A
B
C
D
The table shows possible sequences between the rate of interest and other economic variables. Which sequence is the most likely?
A
B
C
D
A central bank reduces interest rates. What would not be a consequence of this action?
a benefit for borrowers receiving loans
a fall in the international value of the currency
a reduction in inflation
an increase in GDP
What is the likely outcome of an expansionary monetary policy?
Borrowing by consumers falls as the money supply increases.
Firms expand to meet higher consumer demand.
Prices fall as total supply exceeds total demand.
Wages rise due to a lower rate of inflation.
Government policy measures can affect economic activity in a country. Which pair of monetary policy measures would be likely to increase employment?
depreciate foreign exchange rates and increase education spending
increase money supply and reduce interest rates
provide subsidies and grants and lower sales tax
reduce income tax and improve infrastructure
A government lowers the rate of interest. Who is most likely to be disadvantaged by this policy?
house buyers
manufacturers
retailers
savers
Why would devaluing the international value of an economy’s currency help reduce unemployment?
Devaluing the currency would increase the cost of production.
Devaluing the currency would increase the confidence of investors.
Devaluing the currency would increase the foreign demand for domestic products.
Devaluing the currency would increase the demand for imports.
What correctly explains the effect of monetary policy measures on macroeconomic aims?
A higher exchange rate will make imports more expensive and improve the balance of payments.
An increase in interest rates will encourage investment and lead to higher economic growth.
An increase in the money supply in an economy without spare capacity will result in demand-pull inflation.
Higher interest rates result in less income from savings and therefore higher unemployment.
What is the most likely effect of a government reducing the money supply?
Employment will decrease.
Growth will increase.
Inflation will increase.
Tax rates will decrease.