..26.objective.

Question 1 The precautionary demand for money is: a) An idle balance b) An active balance c) Directly related to interest rates d) Inversely related to income Question 2 The liquidity trap occurs when the demand for money: a) Is perfectly interest elastic b) Is perfectly interest inelastic c) Means that an increase in money supply leads to a fall in the interest rate d) Means that an increase in the money supply leads to an increase in the interest rate Question 3 A fall in interest rates is likely to: a) Increase aggregate demand b) Increase savings c) Decrease consumption d) Decrease exports Question 4 According to the quantity theory of money an increase in the money supply is most likely to lead to inflation if: a) The velocity of circulation decreases b) The number of transactions decreases c) There is deflation d) The velocity of circulation and the number of transactions is constant Question 5 A reduction in the money supply is likely to: a) Reduce the interest rate b) Increase the interest rate c) Increase inflation d) Decrease deflation Question 6 To reduce the supply of money the government could: a) Reduce interest rates b) Buy back government bonds c) Sell government bonds d) Encourage banks to lend Question 7 The speculative demand for money occurs when: a) Individuals hold money just in case an emergency happens b) Individuals hold money to buy things c) Individuals hold money rather than other assets because they are worried about the price of the other assets falling d) Individuals hold money to shop Question 8 An outward shift in the demand for money, other things being equal should lead to: a) A lower interest rate but the same quantity of money b) A higher interest rate but the same quantity of money c) A higher quantity of money but lowerinterest rates d) A higher quantity of money but the same interest rate Question 9 The interest rate in India is determined by: a) The government b) The electorate c) The Monetary Policy Committee d) R B I Question 10 Open Market Operations occur when the government: a) Reduces spending b) Buys and sells bonds and securities c) Increases taxation d) Increases the exchange rate.