30 Questions
Which of the following economic decisions can have a significant impact on an economy?
All of the above
What are the two main types of government policy that can affect the macroeconomy and financial markets?
Monetary policy and fiscal policy
Which of the following is true about the impact of a single household's consumption decisions on the wider economy?
A single household's consumption decisions have a negligible impact on the wider economy
What is the role of fiscal policy?
To make decisions about taxation and spending
Which of the following is NOT one of the important functions of money mentioned in the text?
Serving as a measure of value for goods and services
What was the role of goldsmiths in the evolution of money?
They stored excess gold for individuals and issued receipts
What is the process of lending customers' money to others on the assumption that not all customers will want all of their money back at any one time called?
Fractional reserve banking
In a hypothetical scenario where a bank retains only 10% of any money deposited with them as reserves, what would be the initial balance sheet of the bank if a customer deposits €100?
Assets: €100, Liabilities: €100
According to the text, what happens to speculative balances in equilibrium?
They tend to decrease
According to the text, what is the price of money in the money market?
The nominal interest rate
According to the text, why is the supply curve for money vertical?
Because the supply of money is fixed
According to the text, what happens to the interest rate in the money market when there is excess demand for money?
It rises
According to the quantity theory of money, which of the following equations represents the relationship between money and the price level?
$M \times V = P \times Y$
What does money neutrality imply?
An increase in the money supply does not affect real output or the velocity of money
Which of the following motives for holding money refers to money held to provide a buffer against unforeseen events?
Precautionary
What does the speculative demand for money depend on?
The potential opportunities or risks in other financial instruments
Which of the following is NOT a function of money?
Measure of value
What are the qualities that money needs to have to act as a medium of exchange?
Readily acceptable, have a known value, easily divisible, have a high value relative to its weight, difficult to counterfeit
Which asset often fulfilled the role of medium of exchange in early societies?
Precious metals
What is the overarching goal of both monetary and fiscal policy?
To create an economic environment with stable and positive growth and low inflation
According to the text, what is the formula for calculating the total amount of money 'created' from a deposit in the banking system?
New deposit/Reserve requirement = €100/0.10 = €1,000
What is the money multiplier in the example provided in the text?
1/0.10 = 10
What is the definition of money according to the text?
Money is any medium that can be used to purchase goods and services.
What is the difference between credit card payments and payments made by cheques and debit cards according to the text?
Credit card payments involve deferred payment, while cheque and debit card payments do not.
According to money neutrality, which of the following statements is true?
The money supply does not affect the required real rate of interest but affects inflation and inflation expectations
What is the formula for nominal interest rate (Rnom) in an economy?
$Rnom = Rreal + \pi_e$
What is the distinction between expected inflation and unexpected inflation?
Expected inflation is the level of inflation that economic agents expect in the future, while unexpected inflation is the component of inflation that is a surprise
In a world where all prices in an economy are perfectly indexed to inflation, how would economic agents perceive inflation?
Economic agents would be indifferent to the rise in prices
What are the costs of inflation primarily centered on?
The distinction between expected inflation and unexpected inflation
What has been the general perception of inflation since the 1970s?
Inflation has been seen as a negative thing
Test your knowledge of equilibrium and speculative balances in this quiz. Explore the relationship between individuals' holdings of money and riskier assets, and how it impacts expected returns.
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