Question

Which of the following of commonly referred to as a measure of "narrow" money?

	a	M1
	b	M2
	c	M3
	d	M4

2. Which of the following triggered a bearishness among investors, negative wealth effect and rash of solvency crises in the US banking system leading up to the Great Depression?

a		the end of the gold standard
b		prohibition
c		securities speculation and the Crash of 1929
d		Bretton Woods

3. Which of the following generally cause liquidity crises?

a		assets no longer match liabilities
b		stock market collapse
	c	irrational panic on the part of the banking public
	d	bank runs

4. The unfortunate combination of rising unemployment and inflation is often called?

a		Stagflation
b		Inter-temporal inconsistency
c		a recession
d		an asset price bubble

Answer 1

1.M1 is considered as narrow money because it is the most liquid as it includes coins, notes, etc. M2, M3 and M4 are broad money.

2.Securities speculation and the crash of 1929 caused the solvency crisis as stocks fell drastically and investors were panic stricken. All other options are incorrect as gold standard ended after the depression and bretton woods was much later.

3. Liquidity crisis is a shortage of cash. Assets no longer matching liabilities causes liquidity crisis as this triggers the problem, thus this is the answer. Stock market collape reduces the value of money while irrational panic and bank runs causes financial crisis.

4. Stagflation is the situation when unemployment and inflation, both are high.