1. What is meant by the terms "narrow money" and "broad money"?

Does broad money fulfil all the functions of money?
 
 

2. Which if any count as (broad) money (a) a credit card (b) a debit card (c) a cheque book (d) a bank deposit account pass book. (e) a building society pass book.
 
 

3. If a bank has a surplus of cash why might it choose to make a market loan with it rather than giving extra personal loans or mortgages to its customers?
 
 

4. Why do banks hold a range of assets of varying degrees of liquidity and profitability?
 
 

5. Would it be possible for an economy to function without a central bank?
 
 

6. Imagine that the banking system receives additional deposits of €100 million and that all the individual banks wish to retain their current liquidity ratio of 10%.

    (a) How much of the €100 million will banks choose to lend out initially?
    (b) What will happen to banks’ liabilities (i.e. deposits) when the money lent out is spent and recipients of
          it  deposit it deposit it in their bank accounts?
    (c) How much of these latest deposits will be lent out by the banks?
    (d) By how much will total deposits (liabilities) eventually have risen, assuming that none of the liquidity is
          held outside the banking sector?
    (e) What is the size of the bank multiplier?
 
 

7. What effects will the following have on the (equilibrium) rate of interest?

    (a) banks find that they have a higher liquidity ratio than they need.
    (b) A rise in incomes
    (c) A growing belief that interest rates will rise from their current levels
 
 

8. What effect would a substantial increase in the sale of government bonds(gilts) and Treasury bills have on interest rates?
 

9 What are the reasons for people wanting to hold money?
 

10. Show how the interest rate is determined in the money market.

11. Explain the four terms in the following quantity theory of money identity: MV = PT

12. Why is the quantity theory of money important?