ECS1601 TEST BANK
Question 1
In the goods market of the circular flow model, ….
1) firms buy factors of production from consumers
2) firms buy finished products from households
3) consumers buy factors of production from firms
4) firms sell factors of production to the government
5) consumers buy finished products from firms
Question 2
In the factor market, … .
1) a student buys lunch at a local university cafeteria.
2) the South African Defence Force buys machine guns from a weapons
manufacturer
3) a retirement fund buys shares in a major company
4) a farmer buys farmland from a retiring farmer a welder buys a personal
computer from an electronics store
Question 3
In the circular flow of income and spending, … .
1) investment results in a decrease in the volume of the income flow
2) taxes result in an increase in the volume of the income flow
3) imports result in an increase in the volume of the income flow
4) savings result in a decrease in the volume of the
income flow Question 4
Which one of the following statements is correct?
1) Flows (2) and (3) represent income.
2) Flows (2) and (4) represent spending.
3) Flows (1) and (2) represent spending.
4) Flows (1) and (3) represent spending.
1
,Question 5
1) capital, wealth and income are stock variables, whereas investment and
profit are flow variables
2) capital, wealth and gold reserves are stock variables, whereas investment,
profit and loss are flow variables
3) investment, income and profit are stock variables, whereas capital, wealth
and natural resources are flow variables
4) capital, wealth and population size are stock variables, as are
investment, profit and savings
Question 6
In the circular flow of income and spending, the main leakages are:
a) the foreign sector, the financial sector and taxes
b) imports, investments, bank withdrawals, off-shore shares and securities
c) imports, savings and taxes
1) a
2) c
3) a and b
4) b and c
5) None of the above.
Question 7
In a mixed economy, the economic decisions of what to produce, how to produce it,
and who will receive it are made by … .
1) the government
2) consumers and firms
3) banks and stock markets
4) household, firms, government and the foreign sector.
5) banks and the government
Question 8
An example of a double coincidence of wants is … .
1) a car dealer who wants a TV finding an electronics store owner who wants money
2) a car mechanic who wants a TV finding an electronics store owner who
wants a car repaired
3) an electronics store owner who wants car repairs finding a car mechanic who
wants money
4) All of the above.
Question 9
Money overcomes the problem of a double coincidence of wants through its function
as a …
1) medium of exchange
2) unit of account
3) standard of deferred payment
4) store of value
Question 10
The demand for money curve is … because a lower interest rate ... .
1) upward-sloping; increases the opportunity cost of holding money
2) downward-sloping; increases the opportunity cost of holding money
2
,3) upward-sloping; decreases the opportunity cost of holding money
4) downward-sloping; decreases the opportunity cost of holding money
3
, Question 11
A car-guard deposits his cash tips into his savings account. As a result of only this
transaction, … .
1) M2 increases
2) M2 decreases
3) M3 remains constant.
4) None of the above.
Question 12
Assuming the economy is in equilibrium, the central bank sells bonds by means of
open-market transactions. How would this affect the equilibrium quantity of money
and interest rates in the short run?
1) Quantity of money will go up and interest rates will go up.
2) Quantity of money will go up and interest rates will go down.
3) Quantity of money will go down and interest rates will go up.
4) Quantity of money will go down and interest rates will go down.
Question 13
Suppose that Sandton Bank has excess reserves of R800 and the reserve ratio is
20%. If Tshepo deposits R1 000 into his cheque account with Sandton Bank, and in
turn Sandton Bank lends R600 to Mary, what is the maximum that the bank can lend
to Karabo?
1) R200
2) R800
3) R1 000
4) R2 400
Question 14
Suppose the bank receives a cheque deposit of R300 and its excess reserves increase
by R255, the required reserve ratio must be … .
1) 5%
2) 15%
3) 25%
4) 65%
5) 38%
Question 16
The …demand for money arises from the need to hold money as a medium of
exchange. This demand for money is a function of … .
1) precautionary; interest rates
2) transaction; national income
3) speculative; interest rates
4) precautionary; national income
5) transaction; interest rates
Question 17
If the economy is suffering from a recession, the SARB should apply … monetary
policy by … interest rates.
1) expansionary; decreasing
2) expansionary; increasing
3) contractionary; decreasing
4) contractionary; increasing
4
Question 1
In the goods market of the circular flow model, ….
1) firms buy factors of production from consumers
2) firms buy finished products from households
3) consumers buy factors of production from firms
4) firms sell factors of production to the government
5) consumers buy finished products from firms
Question 2
In the factor market, … .
1) a student buys lunch at a local university cafeteria.
2) the South African Defence Force buys machine guns from a weapons
manufacturer
3) a retirement fund buys shares in a major company
4) a farmer buys farmland from a retiring farmer a welder buys a personal
computer from an electronics store
Question 3
In the circular flow of income and spending, … .
1) investment results in a decrease in the volume of the income flow
2) taxes result in an increase in the volume of the income flow
3) imports result in an increase in the volume of the income flow
4) savings result in a decrease in the volume of the
income flow Question 4
Which one of the following statements is correct?
1) Flows (2) and (3) represent income.
2) Flows (2) and (4) represent spending.
3) Flows (1) and (2) represent spending.
4) Flows (1) and (3) represent spending.
1
,Question 5
1) capital, wealth and income are stock variables, whereas investment and
profit are flow variables
2) capital, wealth and gold reserves are stock variables, whereas investment,
profit and loss are flow variables
3) investment, income and profit are stock variables, whereas capital, wealth
and natural resources are flow variables
4) capital, wealth and population size are stock variables, as are
investment, profit and savings
Question 6
In the circular flow of income and spending, the main leakages are:
a) the foreign sector, the financial sector and taxes
b) imports, investments, bank withdrawals, off-shore shares and securities
c) imports, savings and taxes
1) a
2) c
3) a and b
4) b and c
5) None of the above.
Question 7
In a mixed economy, the economic decisions of what to produce, how to produce it,
and who will receive it are made by … .
1) the government
2) consumers and firms
3) banks and stock markets
4) household, firms, government and the foreign sector.
5) banks and the government
Question 8
An example of a double coincidence of wants is … .
1) a car dealer who wants a TV finding an electronics store owner who wants money
2) a car mechanic who wants a TV finding an electronics store owner who
wants a car repaired
3) an electronics store owner who wants car repairs finding a car mechanic who
wants money
4) All of the above.
Question 9
Money overcomes the problem of a double coincidence of wants through its function
as a …
1) medium of exchange
2) unit of account
3) standard of deferred payment
4) store of value
Question 10
The demand for money curve is … because a lower interest rate ... .
1) upward-sloping; increases the opportunity cost of holding money
2) downward-sloping; increases the opportunity cost of holding money
2
,3) upward-sloping; decreases the opportunity cost of holding money
4) downward-sloping; decreases the opportunity cost of holding money
3
, Question 11
A car-guard deposits his cash tips into his savings account. As a result of only this
transaction, … .
1) M2 increases
2) M2 decreases
3) M3 remains constant.
4) None of the above.
Question 12
Assuming the economy is in equilibrium, the central bank sells bonds by means of
open-market transactions. How would this affect the equilibrium quantity of money
and interest rates in the short run?
1) Quantity of money will go up and interest rates will go up.
2) Quantity of money will go up and interest rates will go down.
3) Quantity of money will go down and interest rates will go up.
4) Quantity of money will go down and interest rates will go down.
Question 13
Suppose that Sandton Bank has excess reserves of R800 and the reserve ratio is
20%. If Tshepo deposits R1 000 into his cheque account with Sandton Bank, and in
turn Sandton Bank lends R600 to Mary, what is the maximum that the bank can lend
to Karabo?
1) R200
2) R800
3) R1 000
4) R2 400
Question 14
Suppose the bank receives a cheque deposit of R300 and its excess reserves increase
by R255, the required reserve ratio must be … .
1) 5%
2) 15%
3) 25%
4) 65%
5) 38%
Question 16
The …demand for money arises from the need to hold money as a medium of
exchange. This demand for money is a function of … .
1) precautionary; interest rates
2) transaction; national income
3) speculative; interest rates
4) precautionary; national income
5) transaction; interest rates
Question 17
If the economy is suffering from a recession, the SARB should apply … monetary
policy by … interest rates.
1) expansionary; decreasing
2) expansionary; increasing
3) contractionary; decreasing
4) contractionary; increasing
4
