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Money and Credit economics MCQs
Credit – A contractual agreement whereby a borrower receives something of value in the present, in exchange for payment in the future, generally with interest. Here on MCQs.club we have designed Multiple Choice Questions (MCQs) on Money and credit that fully cover MCQs on types of credit. These MCQs are useful for Business management exams, competitive exams and Professional accountancy exams.
- Which of the following is correct for “Credit”?
- A contractual agreement whereby a borrower receives something of value in the present, in exchange for payment in the future, generally with interest.
- This could be casual agreement between willing parties, or a much more formal process.
- Both A&B
- None
- Types of credit include:
- Trade credit
- Bank credit
- Consumer credit
- All of the above
- Trade credit –
- This exists between a customer and a seller, usually in the commercial sector. A purchaser can order a good, receive the good, and then pay for it after a certain period of time.
- The credit terms will often mean that the amount has to be paid after 30, 60 or 90 days.
- Both A&B
- None
- Bank credit –
- This type of credit exists when an individual or firm goes to a bank, receives an amount of money upfront, and then pays back the amount over a period of time.
- Bank credit can have varying terms of how much needs to be paid back, and by what time.
- Both A&B
- None
- Advantages of credit include:
- International trade
- Interbank transaction
- Use as security
- All of the above
- The disadvantages of credit money include:
- This might increase money supply in the country which may cause inflation.
- This may lead to establish monopolies of large-scale industrialists and enterprises.
- Excess credit creation becomes a cause of inflation and over investment which may result in recession.
- Easily available credit money turns into unproductive loans which become wasteful use of credit money.
- All of the above
- Which of the following is most likely to be affected by a change in interest rates?
- Consumer spending
- Investment spending
- Government spending
- Exports
- A stimulative fiscal policy combined with a restrictive monetary policy will necessarily cause:
- gross domestic product to increase
- gross domestic product to decrease
- interest rate to fall
- interest rates to rise
- The government makes a new issue of bonds and sells them on the open market, where they are bought by private investors using cheques drawn on their banks.
Which of the following describes the effect this has on the commercial banks?
- They can raise lending because their cash base will rise.
- There is no effect on bank lending.
- They must cut lending to maintain an appropriate ratio of cash to loans.
- They will only be able to increase long term loans.
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