$$RM2,000 \times \frac{1}{0.1} = RM20,000$$

$$RM500 \times (\frac{1}{0.05} - 1) = RM9,500$$

Question 1

Which of the following is NOT a primary function of money?

Accepted Answer

Means of production

Question 2

Which quality is most important for money to serve as a store of value?

Accepted Answer

It must be durable and not depreciate rapidly.

Question 3

If the required reserve ratio is 20%, what is the money multiplier?

Accepted Answer

$$\frac{1}{0.2} = 5$$

Question 4

Which of the following best describes M1 in the measurement of money?

Accepted Answer

Currency in circulation and demand deposits

Question 5

A central bank wants to decrease the money supply. Which action would achieve this?

Accepted Answer

Selling government securities in open market operations

Question 6

If a bank receives a deposit of RM2,000 and the required reserve ratio is 10%, what is the maximum total money supply that can be created?

Accepted Answer

$$RM2,000 	imes \frac{1}{0.1} = RM20,000$$

Question 7

Which of the following is a desirable quality of money?

Accepted Answer

It should be simple to transport, even in large amounts.

Question 8

What is the main role of the central bank in the financial system?

Accepted Answer

Regulating the money supply and overseeing the banking system

Question 9

Which of the following would cause the money supply curve (Ms) to shift to the right?

Accepted Answer

The central bank decreases the required reserve ratio.

Question 10

In the context of Malaysia’s financial system, which institution is responsible for monetary policy?

Accepted Answer

Bank Negara Malaysia

Question 11

If the initial deposit is RM500 and the reserve ratio is 5%, what is the total credit creation?

Accepted Answer

$$RM500 	imes (\frac{1}{0.05} - 1) = RM9,500$$

Question 12

Which of the following is NOT included in M2 (Broad Money)?

Accepted Answer

Deposits placed with other banking institutions

Question 13

Why is uniform quality a desirable characteristic of money?

Accepted Answer

It ensures that people do not have to sort and evaluate each unit of money.

Question 14

Which of the following best explains why money must be a unit of account?

Accepted Answer

It provides a consistent method for quoting prices of goods and services.

Question 15

If the central bank lowers the discount rate, what is the likely effect on the money supply?

Accepted Answer

The money supply will increase.

Question 16

Which of the following is an example of non-bank financial intermediation in Malaysia?

Accepted Answer

Insurance companies

Question 17

What is the formula for the money multiplier?

Accepted Answer

$$	ext{Money Multiplier} = \frac{1}{	ext{Reserve Ratio}}$$

Question 18

Which of the following actions by the central bank would most likely lead to inflation if not controlled?

Accepted Answer

Decreasing the required reserve ratio

Question 19

Why is it important for money to be easily divisible?

Accepted Answer

It allows for transactions of all sizes and makes market trading easier.

Money Supply and the Federal Reserve System: Concepts, Functions, and Control Mechanisms

Study Guide - Practice Questions