Monetary Economics Study Guide

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What is the primary function of financial markets?

To facilitate the transfer of funds from those who have a shortage to those who have an excess (correct)
To regulate the interest rate in the economy
To act as a clearinghouse for financial transactions
To provide a platform for trading securities

What is a security, in the context of financial markets?

A claim on the issuer's future income or assets (correct)
A market where funds are transferred from people who have excess funds to people who have a shortage
A financial institution that provides loans to individuals
A type of interest rate that is used to calculate the cost of borrowing

What is an example of a debt security?

Bond (correct)
Currency
Stock
Mutual fund

What is the interest rate, in essence?

The cost of borrowing or the price paid for the rental of funds (D) Signup and view all the answers

What is the purpose of a stock, in terms of its ownership structure?

To represent a share of ownership in a corporation (B) Signup and view all the answers

What is the primary function of a central bank, in the context of monetary policy?

To conduct monetary policy and manage the money supply (D) Signup and view all the answers

What is the main issue in the liquidity approach?

Determining the cutoff point for categorizing assets (B) Signup and view all the answers

What are M1, M2, and M3 also known as?

Monetary aggregates (B) Signup and view all the answers

What is the main component of M1?

Currency and transactions deposits (A) Signup and view all the answers

What is the main concern related to a party in a transaction?

The risk that a party has not entered into the contract in good faith (B) Signup and view all the answers

What is the monetary base?

The quantity of government-produced money held by the public and reserves in depositary institutions (D) Signup and view all the answers

What is the primary function of the monetary sector?

To channel funds from savers to lenders (A) Signup and view all the answers

What is the purpose of categorizing money supply into M1, M2, and M3?

To classify monetary aggregates using a mixture of transactions and liquidity approaches (B) Signup and view all the answers

Which institution is responsible for measuring and defining money in Malaysia?

Central Bank (BNM) (D) Signup and view all the answers

What is the main influence on the level of interest rates in an economy?

The process of demand and supply of money (A) Signup and view all the answers

What is the primary role of the household sector in the economy?

To own resources (A) Signup and view all the answers

What is the primary role of the government sector in the economy?

To collect taxes and spend them (A) Signup and view all the answers

What is the primary role of the foreign sector in the economy?

To facilitate international trade (D) Signup and view all the answers

What percentage of M1 is comprised of demand deposits?

60% (C) Signup and view all the answers

What is included in M2 in addition to M1?

All of the above (D) Signup and view all the answers

What is the difference between M2 and M3?

M3 includes deposits with finance companies, while M2 does not (C) Signup and view all the answers

What is the purpose of having multiple measures of money supply?

To provide a comprehensive view of the money supply (A) Signup and view all the answers

What is included in M3 but not in M2?

Fixed deposits with finance companies (A) Signup and view all the answers

What is the relationship between M1, M2, and M3?

M1 is a subset of M2, and M2 is a subset of M3 (B) Signup and view all the answers

What is the primary reason for redefining money supply over time?

To reflect the emergence of new financial instruments and payment systems (B) Signup and view all the answers

What is the main advantage of using monetary aggregates (M1, M2, M3) in monetary policy?

They serve as a guide for monetary policy actions (D) Signup and view all the answers

What is the primary limitation of a barter trade system?

It is inefficient due to the double coincidence of wants (C) Signup and view all the answers

What is the primary function of money in an open economy?

To promote economic efficiency (B) Signup and view all the answers

What is the effect of an increase in money supply on economic variables?

It increases economic growth and reduces price level (D) Signup and view all the answers

What is a key factor that makes Malaysian Ringgit suitable as a medium of exchange?

Its stability in terms of purchasing power (D) Signup and view all the answers