Chapter 14
Revision Questions
Theory discussion questions:
1. Describe the main functions of the South African Reserve Bank.
2. What are the main determinants of the demand for money? Explain the link between each
determinant and the quantity of money demanded.
3. Describe the main functions of money and explain the role of each function
4. Describe the main motives for holding money.
5. How will you explain to your friends what money is?
Multiple choice questions
1) Money overcomes the problem of a double coincidence of wants inherent in the barter system
through its function as a:
A. medium of exchange.
B. unit of account.
C. standard of deferred payment.
D. store of value.
E. financial intermediary.
2) An increase in the market interest rates:
A. will shift the money demand curve downwards.
B. implies a lower opportunity cost of holding money balances.
C. will cause the price of bonds to fall.
D. will increase the purchasing power of money.
3) Which one of the following statements is NOT true?
A. Money is a unit of account.
B. Money is a store of value.
C. Money is a medium of exchange.
D. Money is another term for income.
E. Money is the most liquid asset.
4) Which of the following best describes the M1 measure of the money stock?
A. It is the M3 money measure minus the M2 money measure.
B. M1 includes cash and medium term deposits.
C. M1 is cash plus demand deposits.
D. M1 is cash minus demand deposits.
E. M1 is the most comprehensive measure of money stock available.
5) Which one of the following is incorrect?
Money serves as:
A. a means of payment.
B. a medium of exchange.
C. a factor of production.
D. a unit of account.
E. a store of value.
6) Which one of the following is not a function of the South African Reserve Bank?
A. To formulate and implement monetary policy.
B. To maintain financial stability.
C. To finance government expenditure.
D. To provide economic and statistical services.
E. To act as banker to other banks.
7) Interest rates in South Africa are essentially determined by:
A. the cost of capital.
B. the interaction between the demand for money and the supply of money.
C. the South African Reserve Bank.
D. the South African government.
E. the quantity of money in circulation.
8) Which one of the following statements is incorrect?
A. The M1 money stock consists largely of demand deposits.
B. The M2 money stock consists largely of notes and coins.
C. M3 is the most comprehensive measure of money.
D. M1 includes everything that normally serves as a means of payment.
E. M3 relates to the store of value function rather than to the means of payment function of
money.
