Question

1.

​M2 consists of:

a. ​M1 plus money market mutual funds only.

b. ​M1 plus time deposits only.

c. ​only near-monies.

d. ​coins, currency, and checkable deposits only.

e. ​M1 plus savings accounts, small time deposits, money market mutual funds, and miscellaneous near-monies.

2.

​The demand for money in an economy is high when the:

a. ​real GDP is low.

b. ​price level is high.

c. ​interest rate is high.

d. ​personal tax rate is low.

e. ​unemployment rate is high.

3.

​Which of these is an advantage of money as a store of value?

a. ​It can be easily liquidated.

b. ​It can generate high interest income.

c. ​It can increase potential output.

d. ​It can signal a nation’s economic health.

e. ​It can facilitate hassle-free international exchange.

Answer 1

M2=M1 + saving deposit, including money market deposit accounts +small time deposit+ Money market funds held by individuals.

Hence it can be said that M2 consists of M1 plus savings accounts, small time deposits, money market mutual funds, and miscellaneous near-monies.

Hence option e is the correct answer.

2.

People demand for more money when price level is high, so for purchasing same basket at higher price, more money are required.

Hence it can be said that ​the demand for money in an economy is high when the price level is high.

Hence option b is the correct answer.

3.

Money is anything which is used for the transaction in the economy and money have following functions

Three function of money are;

Store of value; Money can be used for storing wealth because it does not perish easily and it is easy to preserve in the house. But in the barter system storing goods was not possible which was used for exchange.

Hence it can be said that the advantage of money as a store of value is that it can be easily liquidated.

Hence option a is the correct answer.