Question

6. The US savings/loan crisis in the 1970s/80s is an example of:

a) monetary policy

b)fiscal policy

c)disintermediation

d)regulation

e) none of these

7. M2 includes all of these except

a)M1

b)Money market mutual funds

c)currency

d) large time deposits

e)checking account

8. As interest rate increases, people:

a) increase quantity of money demanded

b)decrease quanityt of money demanded

c) keep quantity demanded constant

d) spend more moeny

e) none of these

9. Which are not a motive for holding money?

a)transaction motive

b)income motive

c)precautionary motive

d)portfolio motive

e) none of these

10) Who is responsible for the size of the money supply?

a)money multiplier

b)banks

c)fed

d)gov

e) U.S. treasury

Answer 1

QUES7:- The correct answer is option (d) i.e.,Checking AccountThe M2 measure of money supply includes:-

1. M1+ Quasi money . where Quasi money = Term deposits+ Time deposits+ Money markets deposit.

Ques8:- The correct answer is decreases the quantity of money demanded.

Quantity demanded means demand for cash balances and Interest rate is opportunity cost of holding money or cash . Due to this as interest rate increases people will keep less cash balance as a result quantity of money demanded decreases.

Ques9:- The correct answer is option (b) i.e., income motive . Holding of Money can not be used for income motive as cash balance does not create any income for an individual. Hence money can be hold for doing day to day transaction or to create portfolio and also for precautionary purpose.

Ques10:- The correct answer is (c) fed . As fed being theCentral Bank has a sole authority of money supply in the economy.

All other option are worked as a tool to create money but size of money supply will decided by the central bank