Question

Agritaban p us equity o 10 A Bank Make Money ily CAJ Pying higher interest rates on e s than we eamed on its assets Paying lower interest rates on its Babies than are eamed on i t s i) Making risky loans Dj Maintaining a high degree of liquidity 11. The Quantity Theory of Money (A) is based on the following equation: MVPO (Assumes that increases in money supply are deflationary (C) Assumes that the Velocity of Money is unstable (D) Asumes that the economy is always operating at its potential 12. Milton Friedman believed (A) Inflation is always and everywhere a monetary phenomenon (B) Increases in money supply are deflationary (C) The Velocity of Money is unstable (D) The economy is always operating at its potential 13. Milton Friedman believed the Fed should follow a Monetary Rule (A) That is should keep the Fed funds rate above the rate of inflation (8) Should keep the rate of growth of the money supply below the growth rate of potential GDP (C) Should vary the rate of growth of the money supply in recessions and expansions (D) Should keep the rate of growth in the money steady at around the growth rate of potential GDP 14. In the Keynesian model the motives for holding money included: (A) A transactions demand (B) A precautionary demand (C) A speculative demand (D) All of the above 15. Keynes recognized during the Great Depression (A) The concept of the "Liquidity-Trap" wherein additional increases in the money supply rendered policy impotent (B) The "Quantity Theory wasn't working because of the variability of Velocity (C) The relevance of a "Monetary-Rule (D) All of the above 16. The Federal Funds rate is: (A) The rate of interest the Fed charges banks for borrowing from it (B) The rate of interest the Treasury pays for funding the Federal deficit (C) The rate of interest in the inter-bank market for reserves (D) The risk-free rate 17. Prior to the crisis if the Fed wanted to lower the Fed Funds rate: (A) The open market desk would sell Treasury securities (B) The desk would sell bonds and buy Treasury bills (C) The desk would buy Treasury securities (D) The desk would intervene in the currency market

Answer 1

Ans:

9) Option B

assets, liabilities plus equity capital.

Explanation

The accounting equation is a basic principle of accounting. The equation is as follows: Assets = Liabilities + Shareholder's equity.

10) Option B

paying lower interest rates on its liabilities than are earned on its assets.

Explanation

Banks make money by charging higher interest rate on money they lend(assets) and paying lower interest rates on its liabilities.

11) Option A

is based on the following equation: MV = PQ

Explanation

The quantity theory of money equation is MV = PQ, where M is the money supply, V is the velocity of money, P is the price level, and Q is output.

12) Option A

Inflation is always and everywhere a monetary phenomenon.

Explanation

Milton Friedman believed, Inflation is always and everywhere a monetary phenomenon. As per Milton Friedman, a steady rate of monetary growth can contribute to achieve stable growth in a country.