Money, Interest Rates, and Exchange Rates Quiz PDF

Quiz: Money, Interest Rates and Exchange Rates 1. 1. Which of the following is NOT a function of money? A. Medium of exchange B. Unit of account C. Long-term investment tool D. Store of value Correct Answer: C 2. 2. Why is money considered the most liquid asset? A. Because it has...

Quiz: Money, Interest Rates and Exchange Rates 1. 1. Which of the following is NOT a function of money? A. Medium of exchange B. Unit of account C. Long-term investment tool D. Store of value Correct Answer: C 2. 2. Why is money considered the most liquid asset? A. Because it has high value B. Because it can be easily converted into goods and services without cost C. Because it yields high interest D. Because it is government-backed Correct Answer: B 3. 3. Which of the following is NOT included in M1? A. Currency B. Demand deposits C. Time deposits D. Checking accounts Correct Answer: C 4. 4. Who controls the money supply in the economy? A. Commercial banks B. Ministry of Finance C. Central Bank D. Parliament Correct Answer: C 5. 5. What happens to money demand when interest rates increase? A. It increases B. It decreases C. It remains unchanged D. It increases sharply then decreases Correct Answer: B 6. 6. Which of the following factors does NOT directly affect money demand? A. Exchange rate B. Interest rate C. Price level D. Income Correct Answer: A 7. 7. Which expression represents real money demand? A. Md = P + L(Y,R) B. Md = L(P,R)/Y C. Md = P × L(Y,R) D. Md/P = Y × R Correct Answer: C 8. 8. What is the equilibrium condition in the money market? A. Money supply equals money demand B. Interest rate equals exchange rate C. Price level equals exchange rate D. GDP equals money demand Correct Answer: A 9. 9. What happens to the interest rate when money supply increases? A. It increases  B. It decreases C. It remains unchanged D. It increases first then decreases Correct Answer: B 10. 10. When USD interest rates decrease due to increased money supply, what happens to the USD/EUR exchange rate? A. USD appreciates B. USD depreciates C. EUR depreciates D. No change Correct Answer: B 11. 11. What happens to the USD/EUR exchange rate when the European money supply increases? A. USD depreciates B. EUR appreciates C. EUR depreciates D. No change Correct Answer: C 12. 12. In the long run, what is the effect of a permanent increase in money supply? A. Interest rates increase B. Inflation rises, currency depreciates C. Exchange rate decreases D. Price level decreases Correct Answer: B 13. 13. Which equation reflects the long-run money market equilibrium? A. P = L(R,Y) / Ms  B. P = Ms / L(R,Y) C. Ms = P × Y D. Ms = L(P,Y) Correct Answer: B 14. 14. What is the 'exchange rate overshooting' phenomenon? A. Exchange rate decreases faster than expected B. Short-run exchange rate changes more than long-run due to monetary policy C. Exchange rate does not respond to policy D. Exchange rate responds slowly to policy Correct Answer: B 15. 15. What causes the overshooting phenomenon? A. Rapid price adjustments B. Government controls exchange rate C. Interest rates change faster than prices D. Rapid economic growth Correct Answer: C