ECS 1601

Study Unit 2 Quiz

Multiple Choice Questions (MCQs)

1.

2.

3.

4.

The main function of financial intermediaries within an economy is to:

[1]

Maintain an implement monetary policy

[2]

Act as an intermediary between the surplus units and deficit units in the monetary
economy

[3]

To assist the central bank in determining the interest rate

[4]

To regulate the quantity of money within an economy

Beep bank currently holds R5 000 in reserves and has received R100 000 in deposits. The
credit multiplier is:
[1]

20

[2]

[3]

50

[4]

0.05

If Beep bank receives R20 000 in deposits, how much money can be created if the reserve
requirement is 2%?
[1]

R40 000

[2]

R1 000 000

[3]

R400

[4]

R5 000

A demand determined money supply

[1]

Depends on the amounts of money that banks are able to supply

[2]

Depends on the amounts of money that banks are willing to supply

[3]

Depends on the demand for money and the cost of credit

[4]

Depends on the supply that the SARB determines

Quiz will be discussed on your e-tutor site from Monday 17 February

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ECS 1601
Study Unit 2 Quiz
5.

Inflationary financing refers to a situation where:

[1]

When the SARB reduces the money supply due to high inflation

[2]

When governments borrowing action from the SARB results in an increase in the cash
reserves of the banks

[3]

When the government subsidises production in order to decrease inflation

[4]

When monetary policy tools are used to decrease inflation

Short Questions
6.

Give the term that is described by the following statements:

6.1.

Percentage of total deposits received set aside by banks.

6.2.

Deposits that can be withdrawn immediately be means of a cheque

6.3.

M2 plus all long-term deposits of the domestic private sector with monetary
institutions.

Long Questions
7.

List and explain the functions of money.

8.

How can the SARB make use of the below instruments to decrease the amount of money in
circulation and explain how:

9.

10.

8.1.

Reserve requirement

8.2.

Repo-rate

8.3.

Open-market transactions

List the 4 major areas of responsibility that the SARB has and indicate under which of the
areas the following functions fall:
9.1.

Provides statistics to policy makers.

9.2.

Formulation of exchange rate policy

9.3.

Holds reserves that form part of the monetary base and can be converted into demand
deposits

9.4.

Advises government with regard to monetary and financial matters

9.5.

Conducting monetary policy through the banks refinancing system

Explain how the SARB manages to increase spending through a decrease in the repo rate with
specific reference to the interest rate charged by banks. Make special reference to the
opportunity cost of money.

Quiz will be discussed on your e-tutor site from Monday 17 February

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