Lesson M5.1.1

M5.1.1 Functions, creation and supply of money, and the Fisher equation Quiz: OCR Economics, Unit 10

20 questions

Written by Revision Ninja · Last reviewed 11 October 2026

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Lesson M5.1.1, Functions, creation and supply of money, and the Fisher equation: 20 multiple choice questions for the OCR Economics (H460), Unit 10: The financial sector, written with Revision Ninja.

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The 20 questions

  1. Which function of money eliminates the need for a double coincidence of wants?

    • Store of value
    • Medium of exchange
    • Unit of account
    • Deferred payment standard

  2. Which function of money allows individuals to compare the relative value of different goods?

    • Unit of account
    • Deferred payment standard
    • Store of value
    • Medium of exchange

  3. Which function of money enables the borrowing and lending of funds for future repayment?

    • Deferred payment standard
    • Medium of exchange
    • Store of value
    • Unit of account

  4. Which function of money allows purchasing power to be preserved over time for later use?

    • Unit of account
    • Medium of exchange
    • Deferred payment standard
    • Store of value

  5. Which measure of money supply includes narrow money plus long-term bank deposits?

    • M4
    • M1
    • M0
    • M2

  6. Which term describes liquid assets easily available for transactions, such as cash?

    • Near money
    • Broad money
    • Fiat money
    • Narrow money

  7. In the Fisher equation of exchange MV = PQ, what does V represent?

    • Variable money supply
    • Value of money
    • Volume of output
    • Velocity of circulation

  8. In the Fisher equation MV = PQ, what does the letter P represent?

    • Purchasing power
    • Profit margin
    • Price level
    • Production rate

  9. If commercial banks hold a reserve ratio of 10%, what is the money multiplier?

    • 10
    • 0.1
    • 100
    • 5

  10. A bank receives a £1,000 deposit with a 20% reserve ratio. Maximum money created?

    • £800
    • £2,000
    • £10,000
    • £5,000

  11. If M equals £100bn, V equals 4, and Q equals 200bn, what is P?

    • 2
    • 4
    • 0.5
    • 8

  12. Who creates the vast majority of broad money in a modern market economy?

    • Commercial banks
    • Central bank
    • The Mint
    • National Treasury

  13. What is the primary impact on broad money when a central bank buys bonds?

    • Increases money supply
    • Decreases money supply
    • Has zero impact
    • Reduces bank reserves

  14. What type of money has no intrinsic value and is backed by government decree?

    • Fiat money
    • Commodity money
    • Near money
    • Representative money

  15. What happens to the credit creation process if the public decides to hold more cash?

    • Velocity doubles
    • Money creation decreases
    • Money creation increases
    • Reserve ratio falls

  16. According to classical economists, doubling money supply with V and Q constant causes what?

    • Price level doubles
    • Output doubles
    • Velocity doubles
    • Price level halves

  17. What assumption do Monetarists make about real output Q in the long-run Fisher equation?

    • It grows rapidly
    • It equals zero
    • It is constant
    • It depends on M

  18. Which commercial banking action directly results in the destruction of money?

    • Depositing physical cash
    • Issuing new loans
    • Printing bank notes
    • Repaying bank loans

  19. Which of the following financial assets is considered the least liquid?

    • Bank notes
    • Treasury bills
    • Sight deposits
    • Commercial property

  20. If the central bank increases minimum reserve requirements for banks, what happens to lending?

    • Lending capacity rises
    • Lending capacity falls
    • Lending stays constant
    • Money velocity increases

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