Money and Banking: Functions of Money, Commercial Banks, Central Banks, Saving and Borrowing
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Which is not a function of money?
A medium of exchange
B store of value
C measure of value
D factor of production
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Money acts as a medium of exchange when it
A allows goods to be bought and sold without barter
B keeps its value perfectly forever
C increases national output automatically
D is used only by commercial banks
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Money acts as a store of value when it
A allows people to save purchasing power for future use
B measures the price of goods
C is used to settle debts only
D increases supply of goods
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Money acts as a unit of account when it
A makes barter necessary
B allows prices and values to be compared
C prevents inflation completely
D is printed by firms
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Money acts as a standard of deferred payment when it
A is used to settle future debts
B is used only for cash purchases
C cannot be borrowed
D has no value over time
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Which feature is most important for money to be generally accepted?
A it must be heavy
B people must trust that others will accept it
C it must have intrinsic value
D it must be produced by private firms
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Which item is least likely to function well as money?
A banknotes
B coins
C fresh fish
D debit card balance
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Why is fresh fish poor money?
A it is scarce
B it is not durable
C it can be exchanged
D it has no demand
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Which quality of money means it can be carried easily?
A durability
B portability
C divisibility
D scarcity
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Which quality of money means it can be split into smaller units?
A portability
B durability
C divisibility
D acceptability
Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.
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Which quality of money means it does not wear out quickly?
A durability
B portability
C scarcity
D profitability
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Which quality of money means people are willing to receive it in exchange?
A acceptability
B elasticity
C productivity
D opportunity cost
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Barter is difficult mainly because it requires
A money to lose value
B a double coincidence of wants
C commercial banks to create credit
D government taxation
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A double coincidence of wants means
A two people both want money
B two people each want what the other person offers
C consumers and producers both save income
D banks and borrowers agree on interest rates
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Which is an advantage of using money instead of barter?
A it removes scarcity
B it makes exchange easier
C it removes opportunity cost
D it prevents unemployment
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Which is a commercial bank function?
A issuing notes and coins
B accepting deposits from customers
C setting the official interest rate
D managing the government’s foreign reserves
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Which is a central bank function?
A accepting deposits from households
B providing overdrafts to firms
C issuing notes and coins
D selling groceries to consumers
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Which institution is usually responsible for controlling the money supply?
A commercial bank
B central bank
C supermarket
D trade union
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Which institution is usually the banker to the government?
A central bank
B commercial bank
C insurance company
D private household
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Which institution is usually the lender of last resort to commercial banks?
A central bank
B stock exchange
C consumer cooperative
D multinational company
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Which is most likely to be done by a commercial bank?
A giving loans to households
B setting exchange rate targets for the economy
C printing legal tender
D deciding national tax rates
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A commercial bank earns profit mainly by
A borrowing at a lower interest rate and lending at a higher interest rate
B paying borrowers to take loans
C printing its own money
D setting government expenditure
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The difference between the interest rate commercial banks charge borrowers and pay savers is called
A exchange rate
B interest rate spread
C inflation rate
D dependency ratio
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Which service is provided by commercial banks?
A current accounts
B setting the legal minimum wage
C issuing government passports
D controlling fiscal policy
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Which is not usually a commercial bank service?
A safe deposit facilities
B cheque clearing
C personal loans
D issuing national currency notes
Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.
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A central bank raises interest rates. What is the most likely effect on borrowing?
A borrowing increases because loans are cheaper
B borrowing decreases because loans are more expensive
C borrowing is unaffected because interest rates only affect exports
D borrowing becomes free
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A central bank lowers interest rates. What is the most likely effect on saving?
A saving may fall because the reward for saving is lower
B saving must rise because borrowing becomes cheaper
C saving becomes impossible
D saving is unaffected because interest rates affect only firms
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Higher interest rates usually encourage
A more borrowing and less saving
B less borrowing and more saving
C higher demand for loans only
D lower saving only
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Lower interest rates usually encourage
A less borrowing and more saving
B more borrowing and less saving
C lower consumption only
D no change in investment
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Which is the reward for saving?
A wage
B rent
C interest
D profit
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Which is the cost of borrowing?
A interest
B wage
C dividend
D subsidy
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A household saves more when interest rates rise because
A the opportunity cost of spending increases
B loans become easier to repay
C prices must fall immediately
D income tax must fall
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A firm may borrow more when interest rates fall because
A investment projects become cheaper to finance
B saving becomes more attractive
C production costs always rise
D demand for its product must fall
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Which reason may cause households to save?
A to finance future purchases
B to increase current consumption immediately
C to avoid earning interest
D to reduce future security
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Which reason may cause households to borrow?
A to buy expensive goods before they have enough savings
B to reduce current spending only
C to earn interest from banks
D to lower their disposable income immediately
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Which person is most likely to save more?
A someone expecting unemployment soon
B someone with no income
C someone facing very high essential spending
D someone whose income is lower than basic needs
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Which person is most likely to borrow more?
A someone buying a house with a mortgage
B someone placing money in a savings account
C someone receiving interest from a bank
D someone avoiding debt completely
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Which is a possible disadvantage of borrowing?
A interest must be paid
B future consumption always rises
C no repayment is required
D borrowing always increases income
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Which is a possible disadvantage of saving?
A interest must be paid to the bank
B current consumption is sacrificed
C debt always increases
D future purchasing power always falls to zero
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Which is a possible advantage of saving?
A increased financial security
B guaranteed higher inflation
C lower future income
D automatic economic growth
Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.
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Which is a possible advantage of borrowing?
A immediate access to funds for consumption or investment
B no future repayment
C guaranteed fall in interest rates
D automatic increase in savings
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Inflation reduces money’s usefulness mainly as a
A store of value
B medium of exchange
C unit of account only
D standard of weight
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If prices rise rapidly, money loses
A purchasing power
B portability
C divisibility
D physical size
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If money is not generally accepted, it fails mainly as a
A medium of exchange
B factor of production
C trade union
D public good
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If money cannot be divided into smaller units, it fails mainly in
A divisibility
B durability
C scarcity
D inflation measurement
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Which is an example of near money?
A notes and coins only
B savings account deposits that can be converted into cash
C a factory machine
D a natural resource
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Which is most liquid?
A cash
B house
C factory building
D machinery
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Liquidity means
A how easily an asset can be converted into money without loss of value
B how much tax a person pays
C how quickly inflation rises
D how many workers are unemployed
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A central bank may reduce money supply by
A raising interest rates
B lowering interest rates
C increasing subsidies to firms
D reducing income tax
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A central bank may increase money supply by
A raising reserve requirements and interest rates
B lowering interest rates
C banning commercial bank deposits
D increasing tariffs only
Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.
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Answer: D
A wrong: medium of exchange is a function of money.
B wrong: store of value is a function of money.
C wrong: measure/unit of value is a function of money.
D correct: factor of production is not a function of money.
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Answer: A
A correct: money removes the need for barter by allowing buying and selling.
B wrong: this is closer to store of value, and money may lose value due to inflation.
C wrong: money does not automatically increase national output.
D wrong: money is used by households, firms, banks and governments.
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Answer: A
A correct: money stores purchasing power for future spending.
B wrong: measuring prices is the unit of account function.
C wrong: settling future debts is standard of deferred payment.
D wrong: money does not directly increase supply.
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Answer: B
A wrong: money reduces the need for barter.
B correct: unit of account means money measures and compares values/prices.
C wrong: money does not prevent inflation.
D wrong: money is usually issued/controlled by the central bank, not firms.
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Answer: A
A correct: standard of deferred payment means money is used for future payments and debts.
B wrong: cash purchases are immediate payments.
C wrong: money can be borrowed.
D wrong: money must keep enough value to settle future debts.
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Answer: B
A wrong: heavy money is inconvenient.
B correct: money works because people trust it will be accepted by others.
C wrong: modern money does not need intrinsic value.
D wrong: money is usually issued by government/central bank systems.
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Answer: C
A wrong: banknotes function well as money.
B wrong: coins function well as money.
C correct: fresh fish is perishable and not durable.
D wrong: debit card balances can be used for payments.
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Answer: B
A wrong: scarcity alone does not make it poor money.
B correct: fresh fish decays quickly, so it is not durable.
C wrong: it can be exchanged, but not conveniently as money.
D wrong: fish has demand, but still fails as good money.
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Answer: B
A wrong: durability means it lasts.
B correct: portability means money is easy to carry.
C wrong: divisibility means it can be split.
D wrong: scarcity means limited supply.
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Answer: C
A wrong: portability means easy to carry.
B wrong: durability means it lasts.
C correct: divisibility means money can be divided into smaller units.
D wrong: acceptability means people are willing to receive it.
Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.
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Answer: A
A correct: durability means money does not wear out quickly.
B wrong: portability means easy to carry.
C wrong: scarcity means limited supply.
D wrong: profitability is not a quality of money.
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Answer: A
A correct: acceptability means people are willing to accept money in exchange.
B wrong: elasticity is an economics measure of responsiveness.
C wrong: productivity is output per input.
D wrong: opportunity cost is next best alternative forgone.
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Answer: B
A wrong: barter does not require money.
B correct: barter requires each person to want what the other offers.
C wrong: commercial bank credit is not needed for barter.
D wrong: taxation is not the main issue.
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Answer: B
A wrong: it is not about both wanting money.
B correct: double coincidence of wants means each person wants what the other has.
C wrong: this is unrelated to saving.
D wrong: this is about borrowing, not barter.
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Answer: B
A wrong: money does not remove scarcity.
B correct: money makes exchange easier by avoiding barter.
C wrong: opportunity cost remains.
D wrong: money does not prevent unemployment.
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Answer: B
A wrong: issuing notes and coins is usually a central bank function.
B correct: commercial banks accept deposits from customers.
C wrong: setting the official interest rate is usually central bank work.
D wrong: managing government foreign reserves is usually central bank work.
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Answer: C
A wrong: household deposits are accepted by commercial banks.
B wrong: overdrafts to firms are commercial bank services.
C correct: central banks usually issue notes and coins.
D wrong: selling groceries is unrelated.
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Answer: B
A wrong: commercial banks influence credit, but do not usually control national money supply policy.
B correct: the central bank controls or influences the money supply.
C wrong: supermarkets are retailers.
D wrong: trade unions represent workers.
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Answer: A
A correct: the central bank is usually banker to the government.
B wrong: commercial banks mainly serve households and firms.
C wrong: insurance companies provide risk protection.
D wrong: households are not bankers to government.
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Answer: A
A correct: the central bank acts as lender of last resort to commercial banks.
B wrong: stock exchange is for buying/selling securities.
C wrong: consumer cooperatives are not bank lenders of last resort.
D wrong: multinational companies do not perform this role.
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Answer: A
A correct: commercial banks lend to households and firms.
B wrong: exchange rate targets are usually central bank/government policy.
C wrong: printing legal tender is central bank/government role.
D wrong: tax rates are set by government.
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Answer: A
A correct: banks earn profit by charging more interest on loans than they pay on deposits.
B wrong: banks do not normally pay borrowers to take loans.
C wrong: commercial banks do not print legal tender.
D wrong: government expenditure is fiscal policy.
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Answer: B
A wrong: exchange rate is value of one currency in terms of another.
B correct: the interest rate spread is the gap between lending and deposit rates.
C wrong: inflation rate measures price level rise.
D wrong: dependency ratio compares dependents to working-age population.
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Answer: A
A correct: commercial banks provide current accounts.
B wrong: minimum wage is set by government.
C wrong: passports are issued by government.
D wrong: fiscal policy is government taxation and spending.
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Answer: D
A wrong: safe deposit facilities are commercial bank services.
B wrong: cheque clearing is a commercial bank service.
C wrong: personal loans are commercial bank services.
D correct: issuing national currency notes is usually a central bank function.
Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.
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Answer: B
A wrong: higher interest rates make loans more expensive.
B correct: borrowing usually decreases because the cost of borrowing rises.
C wrong: interest rates affect borrowing by households and firms.
D wrong: borrowing does not become free.
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Answer: A
A correct: lower interest rates reduce the reward for saving, so saving may fall.
B wrong: cheaper borrowing does not directly make saving rise.
C wrong: saving remains possible.
D wrong: interest rates affect households as well as firms.
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Answer: B
A wrong: higher interest rates discourage borrowing.
B correct: higher rates make saving more rewarding and borrowing more costly.
C wrong: demand for loans usually falls.
D wrong: saving usually rises.
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Answer: B
A wrong: lower rates make borrowing cheaper and saving less rewarding.
B correct: lower interest rates usually encourage borrowing and discourage saving.
C wrong: consumption may rise.
D wrong: investment may rise because borrowing is cheaper.
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Answer: C
A wrong: wage is reward for labour.
B wrong: rent is reward for land.
C correct: interest is the reward for saving.
D wrong: profit is reward for enterprise.
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Answer: A
A correct: interest is the cost paid on borrowed money.
B wrong: wage is reward for labour.
C wrong: dividend is payment to shareholders.
D wrong: subsidy is government financial support.
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Answer: A
A correct: when interest rates rise, spending now means giving up more possible interest.
B wrong: higher rates make loans harder to repay.
C wrong: prices do not have to fall immediately.
D wrong: income tax does not have to fall.
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Answer: A
A correct: lower interest rates reduce the cost of financing investment.
B wrong: saving becomes less attractive when rates fall.
C wrong: production costs do not always rise.
D wrong: demand for the product does not have to fall.
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Answer: A
A correct: households save to pay for future purchases.
B wrong: saving reduces current consumption.
C wrong: savers usually want to earn interest.
D wrong: saving usually increases future security.
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Answer: A
A correct: borrowing allows households to buy expensive goods before saving enough.
B wrong: borrowing usually increases current spending.
C wrong: saving earns interest, borrowing pays interest.
D wrong: borrowing gives current funds but creates future repayments.
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Answer: A
A correct: expecting unemployment may encourage precautionary saving.
B wrong: no income makes saving difficult.
C wrong: high essential spending leaves less to save.
D wrong: income below basic needs makes saving unlikely.
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Answer: A
A correct: a mortgage is borrowing to buy a house.
B wrong: placing money in a savings account is saving.
C wrong: receiving interest is linked to saving.
D wrong: avoiding debt means not borrowing.
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Answer: A
A correct: borrowing requires repayment plus interest.
B wrong: future consumption may fall due to repayments.
C wrong: repayment is required.
D wrong: borrowing does not always increase income.
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Answer: B
A wrong: savers receive interest; borrowers pay it.
B correct: saving means giving up current consumption.
C wrong: saving does not increase debt.
D wrong: future purchasing power does not always fall to zero.
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Answer: A
A correct: saving can provide funds for emergencies and future spending.
B wrong: saving does not guarantee higher inflation.
C wrong: saving does not lower future income automatically.
D wrong: saving alone does not guarantee economic growth.
Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.
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Answer: A
A correct: borrowing gives immediate funds for spending or investment.
B wrong: repayment is required.
C wrong: future interest rates are not guaranteed to fall.
D wrong: borrowing does not automatically increase savings.
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Answer: A
A correct: inflation reduces money’s purchasing power, weakening its store of value function.
B wrong: money can still be used for exchange during inflation, although less effectively if extreme.
C wrong: inflation can affect unit of account, but store of value is the main issue here.
D wrong: standard of weight is not a function of money.
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Answer: A
A correct: rising prices mean each unit of money buys fewer goods and services.
B wrong: portability is physical ease of carrying.
C wrong: divisibility is ability to split into units.
D wrong: physical size does not change.
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Answer: A
A correct: if people do not accept it, money cannot work as a medium of exchange.
B wrong: money is not a factor of production.
C wrong: trade union is a worker organisation.
D wrong: money is not a public good.
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Answer: A
A correct: inability to split into smaller units means poor divisibility.
B wrong: durability is about lasting over time.
C wrong: scarcity is limited supply.
D wrong: inflation measurement is unrelated.
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Answer: B
A wrong: notes and coins are actual money, not near money.
B correct: savings deposits are near money because they can be converted into cash.
C wrong: a machine is capital.
D wrong: natural resources are land.
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Answer: A
A correct: cash is already money and can be spent immediately.
B wrong: a house is less liquid because it takes time to sell.
C wrong: factory buildings are illiquid.
D wrong: machinery is less liquid than cash.
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Answer: A
A correct: liquidity means ease of converting an asset into money without losing value.
B wrong: this relates to taxation.
C wrong: this relates to inflation speed.
D wrong: this relates to unemployment.
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Answer: A
A correct: higher interest rates discourage borrowing and reduce money creation/spending.
B wrong: lower rates tend to increase borrowing and money supply.
C wrong: subsidies are fiscal policy and may increase spending.
D wrong: lower income tax may increase spending.
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Answer: B
A wrong: higher reserve requirements and interest rates reduce money supply.
B correct: lower interest rates encourage borrowing and increase money supply/spending.
C wrong: banning deposits would damage banking, not normal monetary expansion.
D wrong: tariffs affect trade, not money supply directly.
Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.