Macroeconomics: the Financial Sector | OCR A-Level Economics (H460)
Macroeconomics: the Financial Sector
- 75 questions
- 6 subtopics
- Component 02: Macroeconomics
- Component 02 and Component 03
The Financial Sector is examined on component 02 of OCR Economics, Macroeconomics.
75 recall questions across 6 subtopics.
Sample questions from Macroeconomics: the Financial Sector
Answer each one closed book first, then open the answer.
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Functions of money, credit creation and narrow and broad money
Which function of money breaks down first during hyperinflation, and why?
Show the answer
The store of value function, because purchasing power falls so quickly that holding money for even a short time destroys wealth, which is why people switch to goods or a foreign currency. -
Functions of money, credit creation and narrow and broad money
How does a central bank add directly to the stock of money in the economy?
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It issues notes and coin and creates reserve balances for commercial banks, for example by buying financial assets under quantitative easing and paying for them with newly created reserves. -
The quantity theory of money and interest rates in the money market
Which two assumptions must hold before MV = PQ implies that money growth causes proportional inflation?
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Velocity of circulation must be stable and real output must be fixed, which in practice means the economy is already at full capacity. -
The quantity theory of money and interest rates in the money market
Describe the shape of the money supply curve in this diagram and explain why it takes that shape.
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It is drawn as a vertical line, because the quantity of money is treated as set by the monetary authorities rather than by the rate of interest. -
Roles of the financial sector, saving and investment
How does the financial sector allow individuals and firms to reduce risk?
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Insurers pool the risks of many customers so that individual losses are covered from shared premiums, and forward and futures markets let firms fix the price of a currency or commodity in advance and hedge against adverse price movements. -
Roles of the financial sector, saving and investment
What is a savings gap?
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It is the shortfall that arises when domestic saving is too small to finance the level of investment a country needs to grow. -
The Harrod-Domar model and microfinance
What two policy routes does the Harrod-Domar model suggest for raising the growth rate?
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Raise the savings ratio, for example by deepening the financial system or attracting foreign capital, or lower the capital-output ratio by using capital more productively. -
The Harrod-Domar model and microfinance
Give three criticisms of microfinance.
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Interest rates are often very high because administering tiny loans is costly, some borrowers take further loans to service existing ones and become over-indebted, and much lending funds consumption rather than productive enterprise.
The 6 subtopics
One subtopic is one session. Work down the list.
| Subtopic | What it covers | Questions |
|---|---|---|
| Functions of money, credit creation and narrow and broad money | Recall questions on the functions and characteristics of money, credit creation by commercial banks, the credit multiplier calculation, and narrow and broad money. | 13 |
| The quantity theory of money and interest rates in the money market | Recall questions on the Fisher equation MV = PQ with calculations, liquidity preference and the demand for money, and how the money market sets the interest rate. | 13 |
| Roles of the financial sector, saving and investment | Recall questions on the roles of the financial sector, financial intermediation, maturity transformation, equity markets, saving and investment, savings gaps and the poverty cycle. | 9 |
| The Harrod-Domar model and microfinance | Recall questions on the Harrod-Domar growth model with calculations and criticisms, microfinance and group lending, and how financial sectors help or hinder development. | 14 |
| Financial regulation and the functions of a central bank | Recall questions on the purposes of financial regulation, systemic risk and moral hazard, capital and liquidity requirements, stress tests, ring-fencing and the functions of a central bank. | 15 |
| Monetary policy effectiveness, limits of regulation and the IMF | Recall questions on the effectiveness of quantitative easing and interest rate cuts, costs of regulation, regulatory capture and arbitrage, and the roles of the IMF and World Bank. | 11 |
How the guide is worked
Answering a question from memory stores it far better than reading the answer again. The guide runs that as a fixed procedure on one subtopic at a time, about twenty minutes a session.
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Step 1 · Closed book
Cover the answers. Work through one subtopic and write down what you can. Leave blanks where you have nothing.
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Step 2 · Open book
Go back to the top. Read each printed answer and write it out in full, including the ones you had right.
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Step 3 · Closed book again
Same questions, same order, from memory. The gap between pass one and pass three is the session result.
Read the full method, the return schedule and the research behind it.
Nearby topics
OCR A-Level Economics Active Recall Guide
Every topic, not just this one. 1,226 questions with their answers.