What happens when the central bank increases the bank rate?
Amount of borrowing increases
Amount of borrowing decreases
Supply of money increases
Commercial banks are not affected
Correct answer is B
The central bank normally raises the lending rates in order to discourage borrowing. When the interest charged on loans is high, fewer people will be willing to borrow money from financial institutions.
Citizens are protected from the government's arbitrariness in taxation by the canon of
Elasticity
Flexibility
Economy
Certainty
Correct answer is C
The canon of economy: implies that the cost of collecting a tax should be as minimum as possible. This is what protects citizens from being overly charged by a government.
An increase in the prices of factor inputs may result in
Demand-pull inflation
Stagflation
Open inflation
Cost-push inflation
Correct answer is D
Cost-push inflation occurs when overall prices increase (inflation) as a result of increases in the cost of wages and raw materials.
The motive for holding money to meet unforeseen events is termed
Precautionary demand
Transactions demand
Liquidity demand
Speculative demand
Correct answer is A
The precautionary demand for money is the act of holding money to cater to unforeseen circumstances.
Which of the following is true of the value of money? It
Is positively related to the price level
Depends on the value people attach to it
Is determined by the government
Is inversely related to the price level
Correct answer is D
Value of money is what one unit of money can buy and the price level is the average of prices of all the goods and services within an economy. So when the price level increases the value of money goes down and vice versa. Hence the relationship between price level in an economy and the value of money is inverse.