Question 1

According to the traditional (narrow) measure of money supply, which of the following is included in M1?

Accepted Answer

Currency (coins & notes) and demand deposits

Question 2

Which equation best represents Irving Fisher’s Quantity Theory of Money?

Accepted Answer

$$MV = PT$$

Question 3

Which of the following is NOT a primary function of money?

Accepted Answer

Issuing government bonds

Question 4

In the context of the Keynesian theory, which motive for holding money is most directly related to uncertainty about the future?

Accepted Answer

Precautionary motive

Question 5

Which of the following best describes the liquidity trap as shown in the second image?

Accepted Answer

A situation where the demand for money is perfectly elastic at a very low interest rate

Question 6

According to the Cambridge (neo-classical) approach, the demand for money is given by which equation?

Accepted Answer

$$Md = kPY$$

Question 7

Which of the following is a limitation of cryptocurrency?

Accepted Answer

High volatility

Question 8

If the velocity of money increases, what happens to the demand for money according to the classical approach?

Accepted Answer

It decreases

Question 9

Which of the following is included in the modern (broad) measure of money supply but NOT in the traditional measure?

Accepted Answer

Time deposits

Question 10

According to Keynes, the speculative demand for money is most sensitive to changes in which variable?

Accepted Answer

Rate of interest

Question 11

Which formula expresses the money multiplier?

Accepted Answer

$$\frac{M}{H}$$

Question 12

In the context of the demand for money, what does the term 'active cash balances' refer to?

Accepted Answer

Money held for transaction and precautionary motives

Question 13

Which of the following is a determinant of the velocity of circulation of money?

Accepted Answer

Volume of production and trade

Question 14

According to Milton Friedman’s restatement of the demand for money, which of the following is TRUE?

Accepted Answer

Money demand depends on permanent income and is relatively stable

Question 15

Which of the following is NOT a function of the central bank in determining the money supply?

Accepted Answer

Holding money as part of the public

Question 16

If the price level ($$P) $$increases while the money supply ($$M) $$and velocity ($$V) $$remain constant, what happens to the total value of transactions ($$T) $$according to Fisher’s equation?

Accepted Answer

It increases

Question 17

Which of the following best describes the relationship between the market rate of interest and the price of securities in the speculative demand for money?

Accepted Answer

They are inversely related

Question 18

Which of the following is a key advantage of cryptocurrency compared to traditional money?

Accepted Answer

Decentralization

Question 19

In the Keynesian framework, the total demand for money is given by which equation?

Accepted Answer

$$Md = L1(y) + L2(r)$$

Question 20

Which of the following would most likely increase the transaction velocity of money?

Accepted Answer

Efficient payment and banking arrangements

Money Supply and Demand: Key Concepts in Monetary Economics

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