FDNECON 03 · Money and Monetary Policy
Conventions
Original source-based practice for FDNECON Quiz #2. Questions are independent: use only each item’s complete givens. Amounts and units are stated in every numerical case. Numeric written answers omit currency symbols and units; rates are entered as numerical percentages (5 means 5%). Round only the final result to two decimals unless instructed otherwise. The course money-market diagram treats supply as vertical and policy-determined, with downward-sloping demand and other determinants fixed. Numerical money-demand equations, finite/infinite spending chains, gap percentages and multiplier/tax formulas are fully stated hypothetical practice extensions, not claims about measured Philippine outcomes or guaranteed policy effects. Expenditure and income approaches remain separate; foreign-income boundary inconsistencies in the source are explained in the reviewer. No question requires an unprovided graphic or another item’s answer.
Questions
01Which action primarily illustrates money as a unit of account?
- Comparing two products using their peso prices.
- Paying a cashier for lunch.
- Saving cash to purchase a book next month.
- Assuming cash buys an unchanged basket forever.
02How much did purchasing power in baskets fall?
Problem
Cash is fixed at ₱1,000. The price of an identical basket rises from ₱200 to ₱250. Measure purchasing power in units of that basket.
- 5%
- 20%
- 0%
- 25%
03Which is a movement along an unchanged money-demand curve?
- Real GDP rises at each possible interest rate.
- A change in transaction needs shifts demand right.
- The central bank changes the policy-determined money supply.
- The interest rate falls while all other demand determinants are held fixed.
04What is the new equilibrium tendency?
Problem
Use the lecture’s downward-sloping money demand and vertical policy-determined supply. Real GDP rises; all other money-demand determinants and supply remain fixed.
- Lower interest rate.
- No possible change in rate.
- Higher interest rate.
- The fixed supply curve must become downward-sloping.
05Which policy is contractionary in the simple money-market model?
- Government cuts taxes to raise disposable income.
- Government builds a school using higher purchases.
- Central bank reduces supply while demand is fixed.
- Central bank expands supply while demand is fixed.
06Which interest-rate change follows?
Problem
Money demand Md=1,200−50r, with Md and Ms in ₱bn and r expressed as numerical percentage points (6 means 6%). Money supply rises from 900 to 1,050; demand is unchanged.
- 6% to 9%
- No change because demand is fixed
- 3% to 6%
- 6% to 3%
07At r=8%, what imbalance exists?
Problem
Md=1,200−50r and Ms=900, all in ₱bn. The numerical r is a percentage rate (8 means 8%). Evaluate the market at r=8%.
- Excess money demand of ₱100bn.
- Equilibrium.
- Excess money supply of ₱100bn.
- Excess money supply of ₱800bn.
08What action most directly matches expansionary OMO?
- A central-bank sale of securities that absorbs funds.
- A government increase in household income-tax rates.
- A reduction in government purchases of roads.
- A central-bank purchase of securities that supplies payment to banks.
09What is the increase in required reserves?
Problem
A bank’s deposit base is fixed at ₱1,000 million. The reserve requirement rises from 10% to 12%.
- ₱20 million
- ₱120 million
- ₱2 million
- ₱100 million
10True or false: because money stores value, a fixed cash balance must retain exactly the same real purchasing power after inflation.
- True
- False
11True or false: changing interest rates is the same operation as directly editing the measured inflation rate.
- True
- False
12Which case is fiscal rather than monetary?
- The central bank lowers the reserve requirement.
- The government increases infrastructure purchases.
- The central bank buys securities.
- The central bank changes monetary conditions to influence rates.
13How much extra annual interest does the higher rate cost?
Problem
A fixed ₱80,000 principal is borrowed for one year at simple annual interest. Compare rates of 5% and 7%; ignore all fees and compounding.
- ₱5,600
- ₱1,600
- ₱160
- ₱4,000
14Which chain is consistent with higher interest rates, other things equal?
- All consumption and investment immediately become zero.
- Borrowing becomes cheaper while saving becomes more rewarding.
- Borrowing becomes more costly and interest-bearing saving more rewarding, tending to restrain spending.
- Every borrower automatically takes a larger loan.
15Which conclusion is justified by the lecture’s currency example?
- Every extra peso raises real GDP by one peso.
- Issuing more nominal currency is not equivalent to producing more real goods.
- Printing currency guarantees long-run productivity growth.
- More currency with unchanged output necessarily lowers the price level.
16What remains uncertain from the supply change alone?
Problem
Money supply rises in the lecture’s diagram while money demand is fixed. No behavioral coefficients or time lags are supplied.
- The exact realized size and timing of output and inflation responses.
- Whether the interest rate is an axis variable.
- The model direction of the interest rate with fixed demand.
- Whether supply shifts right or left when its stated quantity rises.