Money – An officially-issued legal tender used as a medium of exchange, usually through currency notes and coins. Here on MCQs.club we have designed Multiple Choice Questions (MCQs) on Money Economics that fully cover MCQs on Money Definition, What Is Money, Money – Characteristics and Functions, Money: Meaning and Functions of Money, types of money in economics, forms of money. The MCQs are useful for Competitive exams, Business management exams and Professional accountancy exams.

Money – An officially-issued legal tender used as a medium of exchange, usually through currency notes and coins.

1. True
2. False

Identify which of the following is correct for “Barter”.

1. Barter is where one type of good is exchanged for another.
2. Barter can only be of value if there is a double-coincidence of wants.
3. Both A&B
4. None

Problems with barter system include:

1. Finding someone who has the opposite needs to you is problematic in a complex society.
2. Fixing a measure across different product types is near enough impossible.
3. Storing/ saving
4. All of the above

Functions of money include:

1. To act as a medium of exchange
2. To act as a unit of account
3. To act as a store of value
4. To act as a standard of deferred payments
5. All of the above

Assume that economy is in a state of hyperinflation, which of the following is correct for money?

1. As a medium of exchange, people may not trust that the money they are holding will be exchangeable for goods and so money will lose this functionality.
2. As a unit of account, inflation will distort the relative prices between goods making comparisons difficult.
3. Both A&B
4. None

What are the Kinds of money?

1. Commodity money
2. Commodity-backed money
3. Fiat money
4. All of the above

Commodity money –

1. has value even if it wasn’t used as money (also known as intrinsic value).
2. can be exchanged for the commodity on demand
3. is money with no intrinsic value. The value comes solely from the fact that the government has decreed that it has money for that purpose.
4. All of the above

Commodity-backed money –

1. has value even if it wasn’t used as money (also known as intrinsic value).
2. can be exchanged for the commodity on demand
3. is money with no intrinsic value. The value comes solely from the fact that the government has decreed that it has money for that purpose.
4. All of the above

Fiat money –

1. has value even if it wasn’t used as money (also known as intrinsic value).
2. can be exchanged for the commodity on demand
3. is money with no intrinsic value. The value comes solely from the fact that the government has decreed that it has money for that purpose.
4. All of the above

Characteristics of money include:

1. Durability, Divisibility
2. Transportability, Noncounterfeit ability
3. Both A&B
4. None

Which of the following is true for Credit money?

1. Any monetary claim against a physical or legal person that can be used for the purchase of goods and services.
2. This can include a simple verbal, or written agreement, and any other financial instruments that aren’t immediately payable such as bonds.
3. Both A&B
4. None

Advantages of credit money include:

1. Allows immediate consumption of expensive goods, based on future earnings
2. Allows firms to invest, expand and generate future revenue, rather than use retained earnings.
3. Both A&B
4. None

Disadvantages of credit money include:

1. There is often an element of risk involved that the person issuing credit may not receive full payment from the person receiving credit.
2. It may not be possible to establish trust between parties.
3. Both A&B
4. None

In Keynesian view main factors influencing total demand for money include:

1. The level of prices
2. The level of interest rates
3. The level of real national output (GDP)
4. The pace of financial innovation
5. All of the above

liquidity preference theory – The idea that, all else equal, people prefer to hold cash (liquidity) rather than assets that are illiquid. They will, however, be paid a premium to hold more illiquid assets.

1. The above is correct
2. The above is incorrect

In the Keynesian view what are the reasons that someone would wish to hold money.

1. Transactional: ability to pay for goods and services
2. Precautionary: the money people hold for emergency purchases
3. Speculative: as a store of wealth
4. All of the above

Identify which of the following is correct for “Bond”.

1. An investment that is bought up front by an investor, and which then pays a fixed amount in return at regular time periods (usually annually).
2. As the interest rate falls, the price of bonds increases.
3. Both A&B
4. None

liquidity trap – A situation where prevailing interest rates are low, and savings rates are high, causing monetary policy to be ineffective.

1. True
2. False

The policies that can help to break out of the liquidity trap include:

1. Fiscal policy
2. Rising inflation expectations
3. Expectations of low interest rates
4. All of the above

Which of the following is correct for “liquidity preference curve”?

1. Aggregating the transactional, precautionary and speculative demand for money.
2. It is inversely related to the rate of interest
3. Both A&B
4. None

From the following what is correct for “Transactional money”.

1. that which is used to buy and sell things within an economy
2. that is in peoples’ accounts that they have immediate access to
3. money that belongs to people, but which they cannot access immediately
4. None

From the following what is correct for “Checking accounts”.

1. that which is used to buy and sell things within an economy
2. that is in peoples’ accounts that they have immediate access to
3. money that belongs to people, but which they cannot access immediately
4. None

From the following what is correct for “Savings deposits”.

1. that which is used to buy and sell things within an economy
2. that is in peoples’ accounts that they have immediate access to
3. money that belongs to people, but which they cannot access immediately
4. None

Which of the following is most fully liquid type of money?

1. Transactional money
2. Checking accounts
3. Savings deposits
4. Large time assets

Which of the following is most illiquid type of money?

1. Transactional money
2. Checking accounts
3. Savings deposits
4. Large time assets

An increase in money supply has the effect of lowering the interest rate at which people can borrow, hence directly affecting the level of investment of and consumption within an economy.

1. True
2. False

The various means by which the government can attempt to control the money supply include:

1. Open market operations
2. Interest rates and Special deposits
3. Government borrowing
4. All of the above

From the following what is correct for “Government borrowing”.

1. higher borrowing by the government reduces the money supply
2. lower borrowing by the government increases the money supply
3. Both A&B
4. None

Quantity theory of money –

1. If the supply of money increases, the general price level will do so too.
2. This leads to uncontrollable inflation
3. Both A&B
4. None

Equation for Quantity theory of money is –

1. M*Y=P*V
2. M*V=P*Y
3. P*V= M*Y
4. None

If government decides that they wish to control the general price level, the quantity theory of money suggests that they should keep in check the growth of the money supply.

1. False
2. True

Which of the following is correct for “Inflation”?

1. A continuous or persistent increase in the general price level.
2. Another important point to note is that a fall in the inflation rate does not equate to a fall in prices
3. A one-off price rise constitute inflation
4. Option A&B only

Consumer prices index (CPI) –

1. A measure of the weighted average of prices of a basket of goods and services.
2. The CPI is calculated by taking price changes for each item in the predetermined basket, averaging them, and then weighting by their importance.
3. It is an index because the changes in prices are measured in relation to an index of 100.
4. All of the above

Limitations of CPI as a measure include:

1. Not fully representative: because it is taking the “average” basket of goods, this won’t be what everyone is faced with.
2. Changing quality of goods and services
3. Index-number problems
4. All of the above

Types of inflation include:

1. Low, Mild, High, Hyper
2. Deflation, Stagflation, Wage spiral
3. Both A&B
4. None

Low inflation –

1. Though subjective to measure, low inflation typically means that the price level will increase at a rate each year of perhaps up to 5%.
2. This is where prices begin to rise a lot quicker. It is likely that prices may be increasing at an annual rate of 60%, or even 100%
3. Prices are rampant, and can increase by a rate of 1,000,000,000% annually! Prices increase so quickly, that money becomes worthless.
4. None

High inflation –

1. Though subjective to measure, low inflation typically means that the price level will increase at a rate each year of perhaps up to 5%.
2. This is where prices begin to rise a lot quicker. It is likely that prices may be increasing at an annual rate of 60%, or even 100%
3. Prices are rampant, and can increase by a rate of 1,000,000,000% annually! Prices increase so quickly, that money becomes worthless.
4. None

Hyperinflation –

1. Though subjective to measure, low inflation typically means that the price level will increase at a rate each year of perhaps up to 5%.
2. This is where prices begin to rise a lot quicker. It is likely that prices may be increasing at an annual rate of 60%, or even 100%
3. Prices are rampant, and can increase by a rate of 1,000,000,000% annually! Prices increase so quickly, that money becomes worthless.
4. None

Stagflation – is marked with slow economic growth combined with high unemployment leading to economic stagnation with higher inflation and reduced gross domestic product.

1. True
2. False

The noticeable impacts of inflation is/are:

1. A redistribution of wealth, which will be different amongst social classes
2. Distortions in the relative prices and output of different goods, industries, and even employment in the economy as a whole.
3. Both A&B
4. None

Costs that are associated with high inflation include:

1. Income redistribution
2. Fall in real incomes
3. Negative real interest rates
4. Business uncertainty
5. All of the above

Causes of inflation might be:

1. Cost-push
2. Demand-pull
3. Both A&B
4. None

Cost-push inflation –

1. This is where the cost of inputs in a product increases, so in order to preserve profit margins, a firm will push up the final price of the good.
2. This is when aggregate demand for goods and services outstrips aggregate supply.
3. Both A&B
4. None

Reasons for an increase in costs (Cost-push inflation) include:

1. Rising labour costs
2. Higher indirect taxes
3. Cost of imports rising
4. All of the above

Demand-pull inflation –

1. This is where the cost of inputs in a product increases, so in order to preserve profit margins, a firm will push up the final price of the good.
2. This is when aggregate demand for goods and services outstrips aggregate supply.
3. Both A&B
4. None

The main causes of demand-pull inflation are:

1. 1. Fiscal stimulus
  2. Monetary stimulus
  3. Depreciation of the exchange rate
  4. Fast growth in other countries

1. All of the above
2. (I) and (III) only
3. (I) and (IV) only
4. None

Identify the Remedies to cost-push inflation.

1. Limit wage increases
2. Limit cost of utilities
3. Reduce cost of imports
4. All of the above

Identify the Remedies to demand-pull inflation.

1. Raise interest rates
2. Raise taxes to reduce disposable income and spending
3. Reduce money supply
4. All of the above

Unemployment –

1. The state of being without employment and actively searching for work.
2. The unemployment rate is often used as a proxy for the health of the economy.
3. This is found by dividing the number of unemployed people in an economy by the number of people in the labour force.
4. All of the above

Types of unemployment include:

1. Demand-deficient unemployment
2. Structural unemployment
3. Real wage unemployment
4. All of the above

Which of the following is true for Demand-deficient unemployment?

1. when an economy is in recession or a period of low growth
2. Aggregate demand may be deficient to meet the potential output in an economy
3. Firms cutback production; in the process reducing the amount of labour that is required.
4. All of the above

Which of the following is true for Structural unemployment?

1. Unemployment that arises through inefficiencies in the labour market.
2. This often occurs through a misalignment of skill sets in certain geographical locations.
3. It is more prominent if labour is unwilling to move geographically in search of new work.
4. All of the above

Real wage unemployment –

1. also known as classical unemployment, occurs when wages are kept artificially high through powerful trade unions.
2. is when people are searching for or are transitioning from one job to another.
3. occurs when people choose not to enter the labour force at the prevailing wage rate.
4. All of the above

Frictional unemployment –

1. also known as classical unemployment, occurs when wages are kept artificially high through powerful trade unions.
2. is when people are searching for or are transitioning from one job to another.
3. occurs when people choose not to enter the labour force at the prevailing wage rate.
4. All of the above

Voluntary unemployment –

1. also known as classical unemployment, occurs when wages are kept artificially high through powerful trade unions.
2. is when people are searching for or are transitioning from one job to another.
3. occurs when people choose not to enter the labour force at the prevailing wage rate.
4. All of the above

Measures to reduce unemployment might include:

1. Education and training
2. Financial assistance
3. Develop a culture for entrepreneurship
4. All of the above

The trade-off indicated by The Phillips Curve explain:

1. As unemployment falls, labour shortages may begin to occur where skilled labour is in short supply. This puts upward pressure on wages.
2. At high levels of unemployment, individuals do not have the bargaining power to increase their own wage, therefore inflation is likely to stay low.
3. Both A&B
4. None

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