Deck 12: Financial Development and Inflation

Question 1

Under a system of fixed exchange rates,a large increase in export revenues (without a corresponding jump in imports)has what effect on the domestic money supply?

A) The money supply will increase.
B) The money supply will decline.
C) The money supply will not be affected.
D) The answer depends on whether the central bank has imposed credit controls on the commercial banks.

Answer 1

A

Question 2

The narrowest measure in the money supply is represented by:

A) M1.
B) M2.
C) M3.
D) M4.

Answer 2

A

Question 3

IDs and Paired-Concept Questions
These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them.
Inflation tax,negative real rates

Answer 3

Answer will vary

Question 4

IDs and Paired-Concept Questions
These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them.
Medium of exchange,M2

Question 5

Which of the following is essential to a strategy of deep finance?

A) avoiding a government budget deficit
B) maintaining very high real interest rates
C) avoiding strongly negative real interest rates
D) all of the above

Question 6

IDs and Paired-Concept Questions
These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them.
Hyperinflation,government budget deficit

Question 7

Policies for financial deepening seek to promote ________ in the real size of the financial system,while shallow finance promotes ________ in the real size of the financial system.

A) growth; reduction
B) reduction; growth
C) stability; measured growth
D) deflation; retraction

Question 8

Which of the following is NOT one of the basic roles essential for the smooth functioning of the financial system?

A) a medium of exchange and store of value, called money
B) a channel for mobilizing savings from numerous sources and channeling them to investors, called financial intermediation
C) a means of transferring and distributing risk across the economy
D) an efficient and comprehensive tax system, allowing more revenue for domestic governments

Question 9

A floating exchange rate allows developing countries to:

A) insulate themselves from world inflation.
B) appreciate their currency against the dollar.
C) isolate themselves from trade with developed nations.
D) risk rapid financial destabilization.

Question 10

Which of the following is NOT a liquid financial asset?

A) currency in circulation
B) time deposits
C) demand deposits
D) foreign aid

Question 11

IDs and Paired-Concept Questions
These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them.
Financial assets,nonfinancial assets

Question 12

What,particularly in a developing country,is the most visible and vital component of the financial system (as acceptor of deposits and grantor of shorter-term credit)?

A) investment banking
B) commercial banking
C) foreign investors
D) hedge funds

Question 13

Total liquid liabilities (M3),the broadest measure of money,is the sum of:

A) currency in circulation outside banks plus demand deposits.
B) currency in circulation outside banks plus demand deposits plus time and saving deposits.
C) currency in circulation outside banks plus demand deposits plus time and saving deposits plus income taxes.
D) currency in circulation outside banks plus demand deposits plus time and savings deposits plus liabilities of specialized institutions.

Question 14

Why do developing countries have floating exchange rates?

A) to insulate themselves from world inflation
B) to stabilize government deficits
C) to keep reserves low
D) to keep their money value higher than the dollar

Question 15

According to the box study "Does Micro Credit Reduce Poverty?," what was the effect of opening micro credit branches in randomly selected slum neighborhoods as compared to slums without these additional branches?

A) Slums with access to more mirco credit experienced a reduction in poverty within 18 months.
B) Slums with access to Spandana loans opened 1.7% more businesses than those without access.
C) There was a significant increase in total consumption expenditures between treatment and control areas.
D) Spandana branches had an influx of borrowers, averaging a total of 70 percent of households taking out loans.

Question 16

IDs and Paired-Concept Questions
These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them.
Commercial banks,financial intermediation

Question 17

What is achieved by having an upward adjustment in reserve requirements?

A) The money multiplier is increased, lowering inflation.
B) It reduces the stock of money that can be supported by a given amount of reserves.
C) The money multiplier is decreased.
D) Both b and c, which may help moderate inflation.

Question 18

IDs and Paired-Concept Questions
These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them.
Shallow finance,informal credit market

Question 19

If a country wants to enact policies for growth in the real size of the financial system,financial deepening,it will require:

A) a negative real interest rate.
B) a negative GDP.
C) a positive real interest rate.
D) a decrease in inflation.

Question 20

During the period beginning in the 1950s and continuing into the 1980s (and even beyond),Argentina,Brazil,and Chile experienced:

A) chronic inflation.
B) acute inflation.
C) runaway inflation.
D) little to no inflation.

Question 21

IDs and Paired-Concept Questions
These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them.
Fiscal policy,stimulus package

Question 22

IDs and Paired-Concept Questions
These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them.
Domestic credit expansion,credit ceilings

Question 23

IDs and Paired-Concept Questions
These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them.
Pegged exchange rate,floating exchange rate

Question 24

IDs and Paired-Concept Questions
These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them.
Real interest rate,deep finance

Question 25

IDs and Paired-Concept Questions
These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them.
Economic collapse,runaway inflation

Question 26

IDs and Paired-Concept Questions
These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them.
Deep finance,positive real interest rates

Question 27

IDs and Paired-Concept Questions
These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them.
Interest elasticity of savings,interest elasticity of demand for liquid assets

Question 28

IDs and Paired-Concept Questions
These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them.
International reserves,value of imports

Question 29

IDs and Paired-Concept Questions
These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them.
Open-market operations,moral suasion