Monetary Economics Study Guide
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Questions and Answers

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?

    <p>The cost of borrowing or the price paid for the rental of funds</p> Signup and view all the answers

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

    <p>To represent a share of ownership in a corporation</p> Signup and view all the answers

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

    <p>To conduct monetary policy and manage the money supply</p> Signup and view all the answers

    What is the main issue in the liquidity approach?

    <p>Determining the cutoff point for categorizing assets</p> Signup and view all the answers

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

    <p>Monetary aggregates</p> Signup and view all the answers

    What is the main component of M1?

    <p>Currency and transactions deposits</p> Signup and view all the answers

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

    <p>The risk that a party has not entered into the contract in good faith</p> Signup and view all the answers

    What is the monetary base?

    <p>The quantity of government-produced money held by the public and reserves in depositary institutions</p> Signup and view all the answers

    What is the primary function of the monetary sector?

    <p>To channel funds from savers to lenders</p> Signup and view all the answers

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

    <p>To classify monetary aggregates using a mixture of transactions and liquidity approaches</p> Signup and view all the answers

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

    <p>Central Bank (BNM)</p> Signup and view all the answers

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

    <p>The process of demand and supply of money</p> Signup and view all the answers

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

    <p>To own resources</p> Signup and view all the answers

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

    <p>To collect taxes and spend them</p> Signup and view all the answers

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

    <p>To facilitate international trade</p> Signup and view all the answers

    What percentage of M1 is comprised of demand deposits?

    <p>60%</p> Signup and view all the answers

    What is included in M2 in addition to M1?

    <p>All of the above</p> Signup and view all the answers

    What is the difference between M2 and M3?

    <p>M3 includes deposits with finance companies, while M2 does not</p> Signup and view all the answers

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

    <p>To provide a comprehensive view of the money supply</p> Signup and view all the answers

    What is included in M3 but not in M2?

    <p>Fixed deposits with finance companies</p> Signup and view all the answers

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

    <p>M1 is a subset of M2, and M2 is a subset of M3</p> Signup and view all the answers

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

    <p>To reflect the emergence of new financial instruments and payment systems</p> Signup and view all the answers

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

    <p>They serve as a guide for monetary policy actions</p> Signup and view all the answers

    What is the primary limitation of a barter trade system?

    <p>It is inefficient due to the double coincidence of wants</p> Signup and view all the answers

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

    <p>To promote economic efficiency</p> Signup and view all the answers

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

    <p>It increases economic growth and reduces price level</p> Signup and view all the answers

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

    <p>Its stability in terms of purchasing power</p> Signup and view all the answers

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