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IX. Say whether the following statements are true or false. Extend your idea.




 

1. There is no possibility that the bank of England can go bankrupt because it always meet withdrawals by its depositors by printing new banknotes a little more quickly.

 

2. The central bank can reduce the money supply by reducing the amount of cash that the commercial banks must hold as reserves.

 

3. The central bank can induce the commercial banks voluntarily to hold additional cash reserves by setting the discount rate at penalty level.

 

4. Open market operations are a means by which the Bank alters the monetary base, banks' cash reserves, deposit lending, and the money supply.

 

5. When you've tried everywhere else to get money for your holidays, you go to the lender of last resort.

 

6. Public sector borrowing requirement (PSBR) must be met by printing money; therefore there is a direct link between the size of PSBR and money supply.

 

7. Money is a nominal variable, not a real variable.

 

8. The existence of uncertainty increases the demand for bonds.

 

9. The best measure of the opportunity cost of holding money is the real interest rate.

 

10. An excess demand for money must be exactly matched by an excess supply of bonds: otherwise people would be planning to hold more wealth than they really possess.

 

 

X. Complete the sentences with prepositions:

1) Of the total capital, 19 % is expected to be reserved a) … strategic investors.

2) If you see a computer b) … under $400, you should snap it c) ….

3) Some profits of the firms are usually retained, either to be spent d) … the expansion of is a special loan f) … people who want to buy a house.

4) Many people these days buy things g) … credit instead of buying h) … cash.

5) A mortgage is a special loan e)... people who want to buy a house.

6) High interest rate has an impact i) … the consumer’s ability to buy a new home.

7) Changing interest rates is a method that is used quite frequently j) … slowing k) … or speeding l) … the economy.

8) The interest rate m) … the central bank will influence the rates commercial bank set n) … their customers.

9) If there is a limited amount of money available, the suppliers (the banks) will charge a higher price (the interest rate) as demand o) … money increases.

10) Exchange rate mechanisms are ways to control the value of the national currency

p) … other currencies.

XI. Read the text and choose the correct word or words from A, B, C or D to fill in each gap:

Money supply

Governments measure the money supply in their countries ___ 1 ___ information about ___ 2 ___ in aggregate demand, the state of financial market and the need for and ___ 3 ___ of monetary policy.

Measuring the money supply is not as easy as it might first appear. This is because it is difficult to decide what to include in any measure of money. Economists define ___ 4 ___ as money if they ___ 5 ___ the functions of money. However, ___ 6 ___ to which items carry out these functions varies and can change over time. As a result, governments use a variety of measures of the money supply which are occasionally altered to reflect developments in ___ 7 ___ carried out by particular items.

The measures of the money supply can be divided into narrow and broad measures. Narrow measures focus on items which are used primarily as a means of exchange, whereas broad measures include items which are used not only as a means of exchange but also as a store of value.

In the UK the measure of narrow money is M0. This consists of notes and coins and banker’s deposits with the Bank of England. These deposits are used by banks ___ 8 ___ debts between each other and ___ 9 ___ cash when needed. M0 is sometimes referred to as the monetary base or high-powered money.

M4 is the UK’s broad measure. This includes notes and coins and bank and building society deposits.

 

1 A to call B to require C to gain D  to expect
2 A trends B courses C senses D directions
3 A decisiveness B sufficiency C efficiency D satisfaction
4 A details B items C features D particulars
5 A affect B produce C effect  D carry out
6 A the extent B the part C the plot   D the potion
7 A the shares B the elements C the notes  D the roles
8 A to decide B to settle C to solve D to bid
9 A to draw B to seize   C to withdraw D to rent

 

XII. Tasks for thought.

 

1. In what way would you expect each of the following items to affect the demand for real money balances?

a) An increase in real income.

b) An increase in confidence about future.

c) An increase in the opportunity cost of holding money.

d) A fall in nominal interest rates.

e) An increase in the price level.

f) An increase in the interest differential between risky assets and time deposits.

g) An increase in uncertainty concerning future transactions.

h) A fall in the frequency of income payments - for example, a switch from weekly to monthly payment.

 

2. Which of the following situations would entail an increase in the transactions demand for money?

 

a) A general rise in consumer prices.

b) An expected general rise in consumer prices.

c) The extension of value-added tax to goods which were previously zero-rated.

d) An increase in the level of real income.

e) An increase in the standard rate of income tax.

f) A fall in interest rates.

 

3. In which of the following circumstances would a rise in interest rate be expected ?

 

a) A fall in money supply.

b) An increase in money demand.

c) A rise in liquidity preference.

d) A fall in the price of bonds.

e) An increase in consumer prices.

 





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