Economics_HSB Huy Nguyen, 3/2024

Practice 10– Money, banking and monetary policy

1. The existence of money leads to

a. greater specialization in production, but not to a higher standard of living.
b. a higher standard of living, but not to greater specialization.
c. greater specialization and to a higher standard of living.
d. neither greater specialization nor to a higher standard of living.

2. Which of the following lists is included in what economists call “money”?

a. cash
b. cash and stocks and bonds
c. cash and stocks and bonds and real estate
d. cash and stocks and bonds and real estate and all other assets

3. Which list ranks assets from most to least liquid?

a. money, bonds, cars, houses
b. money, cars, houses, bonds
c. bonds, money, cars, houses
d. bonds, cars, money, houses

4. Treasury Bonds are

a. liquid, but not a store of value.
b. a store of value, but not liquid.
c. both liquid and a store of value.
d. neither liquid nor a store of value.

5. Currency includes
a. paper bills and coins.
b. demand deposits.
c. credit cards.
d. Both (a) and (b) are correct.

6. Which of the following is not included in M1?

a. a $5 bill in your wallet
b. $100 in your checking account
c. $500 in your savings account
 d. All of the above are included in M1.

7. Credit cards
a. represent the largest component of M1.
b. are not included in M1 but are included in M2.
c. are a form of money unique to the economy.
d. are not considered money.

8. Which of the following institutions is a central bank?

a. the State Bank of Vietnam
b. the Bank of England
c. the Federal Reserve System
d. All of the above are correct.

9. When conducting an open-market purchase, the State Bank of Vietnam

a. buys government bonds, and in so doing increases the money supply.
b. buys government bonds, and in so doing decreases the money supply.
c. sells government bonds, and in so doing increases the money supply.
d. sells government bonds, and in so doing decreases the money supply.

10. Monetary policy affects employment

a. only in the long run.
b. only in the short run.
c. in both the long run and the short run.
d. in neither the long run nor the short run.

11. In a system of 100-percent-reserve banking,

a. banks do not make loans.
b. currency is the only form of money.
c. deposits are banks’ only assets.
d. All of the above are correct.

12. If a bank has a reserve ratio of 8 percent, then

a. government regulation requires the bank to use at least 8 percent of its deposits to make
loans.

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 b. the bank’s ratio of loans to deposits is 8 percent.
c. the bank keeps 8 percent of its deposits as reserves and loans out the rest.
d. the bank keeps 8 percent of its assets as reserves and loans out the rest.

13. As the reserve ratio decreases, the money multiplier

a. increases.
b. does not change.
c. decreases.
d. could do any of the above.

14. Which of the following increase when the State Bank of Vietnam makes open market purchases?
a. currency and reserves
b. currency but not reserves
c. reserves but not currency
d. neither currency nor reserves

15. The State Bank of Vietnam can increase the money supply by conducting open-market
a. sales or by raising the discount rate.
b. sales or by lowering the discount rate.
c. purchases or by raising the discount rate.
d. purchases or by lowering the discount rate.

16. During the Covid-19 pandemic, the public tends to hold relatively more currency and relatively
fewer deposits. This decision makes reserves
a. and the money supply increase.
b. and the money supply decrease.
c. increase, but leaves the money supply unchanged.
d. decrease, but leaves the money supply unchanged.

17. Today, bank runs are not a major problem for Vietnam’s banking system because
a. bank runs are now illegal.
b. banks now hold 100 percent of their deposits in reserve.
c. banks are now all government-operated.
d. the government now guarantees the safety of deposits at most banks.

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18. Inflation can be measured by the
a. change in the consumer price index.
b. percentage change in the consumer price index.
c. percentage change in the price of a specific commodity.
d. change in the price of a specific commodity.

19. When prices are falling, economists say that there is

a. disinflation.
b. deflation.
c. a contraction.
d. an inverted inflation.

20. The term hyperinflation refers to

a. the spread of inflation from one country to others.
b. a decrease in the inflation rate.
c. a period of very high inflation.
d. inflation accompanied by a recession.

21. When the price level falls, the number of Vietnamese Dong needed to buy a representative basket
of goods
a. increases, so the value of money rises.
b. increases, so the value of money falls.
c. decreases, so the value of money rises.
d. decreases, so the value of money falls.

22. You put money in the bank. The increase in the VND value of your savings
a. and the change in the number of goods you can buy with your savings are both nominal
variables.
b. and the change in the number of goods you can buy with your savings are both real
variables.
c. is a nominal variable, but the change in the number of goods you can buy with your
savings is a real variable.
d. is a real variable, but the change in the number of goods you buy with your savings is a
nominal variable.

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23. If a bank posts a nominal interest rate of 4 percent, and inflation is expected to be 3 percent, then
a. the expected real interest rate is 7 percent.
b. the expected real interest rate is 1 percent.
c. the expected real interest rate is 1.33 percent.
d. the expected real interest rate is 12 percent.

24. The real interest rate is 4 percent and the nominal interest rate is 6 percent. Is there inflation or
deflation? What is the inflation or deflation rate?
a. deflation; 2 percent
b. deflation; 10 percent
c. inflation; 2 percent
d. inflation; 10 percent

25. People can reduce the inflation tax by

a. reducing savings.
b. increasing deductions on their income tax.
c. reducing cash holdings.
d. None of the above is correct.

26. When inflation rises, people will desire to hold

a. less money and will go to the bank less frequently.
b. less money and will go to the bank more frequently.
c. more money and will go to the bank less frequently.
d. more money and will go to the bank more frequently.

27. When inflation rises, the nominal interest rate

a. rises, and people desire to hold more money.
b. rises, and people desire to hold less money.
c. falls, and people desire to hold more money.
d. falls, and people desire to hold less money

28. Which of the following is an example of menu costs?

a. deciding on new prices
b. printing new price lists
c. advertising new prices

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 d. All of the above are examples of menu costs.

29. When inflation rises, firms make

a. more frequent price changes. This raises their menu costs.
b. more frequent price changes. This reduces their menu costs.
c. less frequent price changes. This raises their menu costs.
d. less frequent price changes. This reduces their menu costs.

30. High and unexpected inflation has a greater cost

a. for those who borrow than for those who save.
b. for those who hold a little money than for those who hold a lot of money.
c. for those who have fixed nominal wages than for those who have nominal wages that
adjust with inflation.
d. All of the above are correct.