PRC 3 Mock

1.
According to Keynesian liquidity preference theory, an increase in the money supply will
a. Raise the price of financial assets
b. Increase in price of bonds
c. Lower the rate of interest
d. All of above
2. Pace of financial innovations will affect:

a) Demand for money
b) Supply of money
c) Liquidity preference
d) a&c
3. In barter system tax collected in form of ___________ it is not possible to spend it on development
projects.
a) Money
b) Goods
c) Dollar
d) None of the above
4. According to classical economist’s money acts as lubricant to allow a smoother interaction between:
a) Market forces
b) Buyers and sellers
c) Demand and supply
d) All of the above
5. The term “precautionary motive” has been discussed in:

a) Quantity theory of money
b) Theory of consumer behaviour
c) Liquidity preference theory
d) Multiplier accelerator theory
6. Which of the following is not one a Keynesian motive for holding money?
a) Investment motive
b) Precautionary motive
c) Speculative motive
d) Transaction motive
7. In the Keynesian theory of demand for money, the transactions demand for money is determined by:
a) The rate of interest
b) The level of consumers’ income
c) Expected changes in consumer prices
d) The amount of money in circulation
8. Which of the following is not a method of holding wealth?

a) Bonds and equities
b) Human wealth
c) Consumer durables
d) Commodities
9. Which of the following is most likely to lead to a fall in the money supply?
a) A fall in interest rates
b) Purchases of government securities by the central bank
c) Sales of government securities by the central bank
d) A rise in the amount of cash held by commercial banks
10. Any monetary claim against physical or legal person can be used for the purchase of goods and
services are called:
a) Money
b) Fiat money
c) Credit money
d) Token money
11. On a short-run Phillips curve, high rates of inflation coincide with:

a) low interest rates
b) high unemployment rates
c) low unemployment rates
d) low discount rates
12.Which of the following would reduce inflation?

a) An increase in direct taxes
b) An increase in indirect taxes
c) Increase in government spending
d) Increase in income
13. If the price of bread increases from Rs.150 to Rs.165?

a) 110
b) 90
c) 100
d) 120
14. If price index for year 2018 was 89.5 and during 2019 it become 91.5 then 2019 CPI will be:
a) 2%
b) 2.5%
c) 2.2%
d) 1.9%
15.An increase in unemployment rate along cost push inflation refers to:
a) Mild inflation
b) Stagflation
c) Hyper inflation
d) None of above
16. A creeping inflation is:

a) Less than 5%
b) Less than 2%
c) Less than 10%
d) zero percent
17. Who gets benefit from inflation?

a) Debtor
b) Creditor
c) Fixed income group
d) All of above
18. A fall in interest rate can cause:

a) Cost push inflation
b) Demand pull inflation
c) Expected inflation
d) Wage spirals
19.Depreciation of domestic currency can cause:

a) A fall in AD
b) A fall in AS
c) A rise in AD
d) A rise in AS
20. A demand pull inflation can be restricted by:

a) Limit wage increase
b) Increase in direct taxes
c) Limit government spending
d) All of the above
21. Which one of the following is not an asset of a commercial bank?

a) Balances at the central bank
b) Money at call
c) Customers' deposits
d) Advances to customers
22. Which of these appears as a liability on a bank’s balance sheet?

a) Reserves
b) Checking accounts
c) Loans
d) Investments and securities
23. If the reserve ratio is 40%, and Rs. 10,000 is deposited in a commercial bank, what is the final
outcome for the economy?
a) Rs. 4,000
b) Rs. 10,000
c) Rs. 25,000
d) Rs. 40,000
24.Which of the following is not the function of a central bank?

a) Lender of the last resort
b) Monetary policy
c) Fiscal policy
d) Credit creation
25. Which of the following is a central bank unable to do?

a) Influence banks to tighten or loosen their credit policies
b) Create a climate of monetary ease or restraint
c) Directly set market interest rates
d) Influence the interest rate on new treasury bonds
26. To counteract a recession, the central bank should:

a) Raise the reserve requirement and the discount rate
b) Sell securities on the open market and lower the discount rate
c) Buy securities on the open market and raise the discount rate
d) Buy securities on the open market and lower the discount rate
27.An increase in the cash reserve ratio would:
a) Decrease prices
b) Reduce inflation
c) Control lending
d) All the above
28. The government makes a new issue of bonds and sells them on the open market, where they are
bought by private investors using cheques drawn on their banks. Which of the following describes the
effect this has on the commercial banks?
a) They can raise lending because their cash base will rise.
b) There is no effect on bank lending.
c) They must cut lending to maintain an appropriate ratio of cash to loans.
d) They will only be able to increase long term loans.
29. Which of the following is a financial intermediary?

a) Pension fund
b) International monetary fund
c) State bank of Pakistan
d) Stock exchange
30. Which of the following is not considered to be a credit instrument?

a) IOU
b) Draft
c) Bond
d) Stock
31. Which one is the core part of balance of payments?

a) Current account
b) Capital account
c) Financing account
d) All of above
32. Which one is not the part of current balance of payments?

a) Trade in goods
b) Trade in services
c) Financial derivatives
d) Transfers
33. Which one is not the part of financing account?

a) Trade in services
b) Financial derivatives
c) Portfolio investment
d) Reserve assets
34. Balancing of bop deficit is possible through:

a) Buying of gold
b) Paying-off deficit
c) Borrowing from other central banks
d) All of the above
35. A terms of trade refers:

a) Ratio of export price to import price
b) Ration of import price to export price
c) Net exports
d) None of the above
36. If in given period of time price index for export increased by 20% and price index of import raised by
10%, then the terms of trade will be:
a) 120
b) 200
c) 119
d) 99
37. Which one cause to deficit in bop?

a) Import of primary goods and export of finished goods
b) Import of finished goods and export of primary goods
c) High income elasticity of import
d) A&c
38. When quota is more effective than tariff in order to improve balance of payments?
a) When export are more elastic
b) When import are more elastic
c) When export are less elastic
d) When import are less elastic
39. Depreciation of domestic currency is workable step of the state to improve balance of payments only
if:
a) Country has export surplus
b) There is no foreign debt
c) Import substitutes are available
d) All of the above
40. A depreciation of domestic currency will:

a) Make export cheaper
b) Make export expensive
c) Make import cheaper
d) Make no difference

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1.

2. Pace of financial innovations will affect:

5. The term “precautionary motive” has been discussed in:

8. Which of the following is not a method of holding wealth?

11. On a short-run Phillips curve, high rates of inflation coincide with:

12.Which of the following would reduce inflation?

13. If the price of bread increases from Rs.150 to Rs.165?

16. A creeping inflation is:

17. Who gets benefit from inflation?

18. A fall in interest rate can cause:

19.Depreciation of domestic currency can cause:

20. A demand pull inflation can be restricted by:

21. Which one of the following is not an asset of a commercial bank?

22. Which of these appears as a liability on a bank’s balance sheet?

24.Which of the following is not the function of a central bank?

25. Which of the following is a central bank unable to do?

26. To counteract a recession, the central bank should:

29. Which of the following is a financial intermediary?

30. Which of the following is not considered to be a credit instrument?

31. Which one is the core part of balance of payments?

32. Which one is not the part of current balance of payments?

33. Which one is not the part of financing account?

34. Balancing of bop deficit is possible through:

35. A terms of trade refers:

37. Which one cause to deficit in bop?

40. A depreciation of domestic currency will:

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