ECONOMICS CH- 16 MONEY AND BANKING WORKSHEET

1.What might increase the use of money as a medium of exchange?

A an increase in income tax

B an increase in interest rates

C an increase in savings

D an increase in specialisation

2. What is most likely to be the main function of a central bank?

A controlling the money supply

B investing in commerce and industry

C issuing and processing credit cards

D making loans to individuals

3. Which statement about a country’s banks is correct?

A Commercial banks hold the financial accounts of the government.

B Commercial banks settle debts by clearing customers’ cheques.

C The central bank sets the government’s tax and spending policies.

D The central bank supplies foreign currency to members of the public

4. In 2008–2009 the central bank of a developed country reduced interest rates from 5 % to 0.5 %

per year to stimulate the economy.

How would this policy have affected the amount saved and the cost of borrowing by individuals?

amount saved cost of borrowing

A decrease decrease

B decrease increase

C increase decrease

D increase increase

5. What is the usual reason why citizens trust their country’s banknotes?

A They are acceptable for trade and exchange.

B They are backed by gold at the central bank.

C They are convertible into the US$ or Chinese Yuan.

D They are recognisable and in infinite supply.

6. When will a central bank act as lender of last resort to a commercial bank?

A when a commercial bank faces a liquidity crisis

B when a commercial bank fails to make a profit

C when a commercial bank needs to raise share capital

D when a commercial bank reduces its lending rates

7. Which statement about financial matters is correct?

A Commercial banks’ main activity is the finance of international trade.

B Paper banknotes possess all the desirable properties needed to act as money.

C Stock exchanges trade mainly in second-hand stocks and shares.

D The central bank acts as the lender of last resort to companies facing bankruptcy.

8. What does a commercial bank not provide?

A cash

B bonds

C loans

D mortgages

9. The use of a mobile (cell) phone to make payments is an example of which function of money?

A a medium of exchange

B a standard of deferred payment

C a store of wealth

D a unit of account

10. In wartime conditions, cigarettes have been used as money.

What disadvantage do cigarettes have for trading compared with notes and coins?

A They cannot act as a medium of exchange.

B They have no intrinsic value.

C They lack durability. D They make a double coincidence of wants necessary.