Question 1

Evidence suggests that a liquidity trap is possible when

Accepted Answer

A)  real interest rates are at zero. 
B)  real interest rates are at or just above zero. 
C)  nominal interest rates are at zero. 
D)  nominal interest rates are at or just above zero. 
A)  real interest rates are at zero. 
B)  real interest rates are at or just above zero. 
C)  nominal interest rates are at zero. 
D)  nominal interest rates are at or just above zero.

Question 2

The financing of government spending by issuing debt

Accepted Answer

A)  causes both reserves and the monetary base to rise. 
B)  causes both reserves and the monetary base to decline. 
C)  causes reserves to rise, but the monetary base to decline. 
D)  has no net effect on the monetary base. 
A)  causes both reserves and the monetary base to rise. 
B)  causes both reserves and the monetary base to decline. 
C)  causes reserves to rise, but the monetary base to decline. 
D)  has no net effect on the monetary base.

Question 3

If the money supply is $500 and nominal income is $3,000, the velocity of money is

Accepted Answer

A)  1/60. 
B)  1/6. 
C)  6. 
D)  60. 
A)  1/60. 
B)  1/6. 
C)  6. 
D)  60.

Question 4

Irving Fisher took the view that the institutional features of the economy which affect velocity change ________ over time so that velocity will be fairly ________ in the short run.

Accepted Answer

A)  rapidly; erratic 
B)  rapidly; stable 
C)  slowly; stable 
D)  slowly; erratic 
A)  rapidly; erratic 
B)  rapidly; stable 
C)  slowly; stable 
D)  slowly; erratic

Question 5

The Keynesian theory of money demand emphasizes the importance of

Accepted Answer

A)  a constant velocity. 
B)  irrational behavior on the part of some economic agents. 
C)  interest rates on the demand for money. 
D)  expectations. 
A)  a constant velocity. 
B)  irrational behavior on the part of some economic agents. 
C)  interest rates on the demand for money. 
D)  expectations.

Question 6

If the money supply is $600 and nominal income is $3,000, the velocity of money is

Accepted Answer

A)  1/50. 
B)  1/5. 
C)  5. 
D)  50. 
A)  1/50. 
B)  1/5. 
C)  5. 
D)  50.

Question 7

The Baumol-Tobin analysis suggests that a decrease in the brokerage fee for buying and selling bonds will cause the demand for money to ________ and the demand for bonds to ________.

Accepted Answer

A)  increase; increase 
B)  increase; decrease 
C)  decrease; decrease 
D)  decrease; increase 
A)  increase; increase 
B)  increase; decrease 
C)  decrease; decrease 
D)  decrease; increase

Question 8

In the early 1990s, M2 growth underwent a dramatic ________, which some researchers believe ________ be explained by traditional money demand functions.

Accepted Answer

A)  surge; cannot 
B)  surge; can 
C)  slowdown; cannot 
D)  slowdown; can 
A)  surge; cannot 
B)  surge; can 
C)  slowdown; cannot 
D)  slowdown; can

Question 9

The classical economists' contention that prices double when the money supply doubles is predicated on the belief that in the short run velocity is ________ and real GDP is ________.

Accepted Answer

A)  constant; constant 
B)  constant; variable 
C)  variable; variable 
D)  variable; constant 
A)  constant; constant 
B)  constant; variable 
C)  variable; variable 
D)  variable; constant

Question 10

The average number of times that a dollar is spent in buying the total amount of final goods and services produced during a given time period is known as

Accepted Answer

A)  gross national product. 
B)  the spending multiplier. 
C)  the money multiplier. 
D)  velocity. 
A)  gross national product. 
B)  the spending multiplier. 
C)  the money multiplier. 
D)  velocity.

Question 11

If initially the money supply is $1 trillion, velocity is 5, the price level is 1, and real GDP is $5 trillion, an increase in the money supply to $2 trillion

Accepted Answer

A)  increases real GDP to $10 trillion. 
B)  causes velocity to fall to 2.5. 
C)  increases the price level to 2. 
D)  increases the price level to 2 and velocity to 10. 
A)  increases real GDP to $10 trillion. 
B)  causes velocity to fall to 2.5. 
C)  increases the price level to 2. 
D)  increases the price level to 2 and velocity to 10.

Question 12

The Baumol-Tobin analysis suggests that

Accepted Answer

A)  velocity is relatively constant. 
B)  the transactions component of the demand for money is negatively related to the level of interest rates. 
C)  the speculative motive is nonexistent. 
D)  velocity is unrelated to the transactions motive. 
A)  velocity is relatively constant. 
B)  the transactions component of the demand for money is negatively related to the level of interest rates. 
C)  the speculative motive is nonexistent. 
D)  velocity is unrelated to the transactions motive.

Question 13

In Irving Fisher's quantity theory of money, velocity was determined by

Accepted Answer

A)  interest rates. 
B)  real GDP. 
C)  the institutions in an economy that affect individuals' transactions. 
D)  the price level. 
A)  interest rates. 
B)  real GDP. 
C)  the institutions in an economy that affect individuals' transactions. 
D)  the price level.

Question 14

Keynes's theory of the demand for money is consistent with

Accepted Answer

A)  countercyclical movements in velocity. 
B)  a constant velocity. 
C)  procyclical movements in velocity. 
D)  a relatively stable velocity. 
A)  countercyclical movements in velocity. 
B)  a constant velocity. 
C)  procyclical movements in velocity. 
D)  a relatively stable velocity.

Question 15

Financing government spending by selling bonds to the public, which pays for the bonds with currency,

Accepted Answer

A)  leads to a permanent decline in the monetary base. 
B)  leads to a permanent increase in the monetary base. 
C)  leads to a temporary increase in the monetary base. 
D)  has no net effect on the monetary base. 
A)  leads to a permanent decline in the monetary base. 
B)  leads to a permanent increase in the monetary base. 
C)  leads to a temporary increase in the monetary base. 
D)  has no net effect on the monetary base.

Question 16

Tobin's model of the speculative demand for money shows that people hold money as a store of wealth as a way of

Accepted Answer

A)  reducing risk. 
B)  reducing income. 
C)  avoiding taxes. 
D)  reducing transactions cost. 
A)  reducing risk. 
B)  reducing income. 
C)  avoiding taxes. 
D)  reducing transactions cost.

Question 17

If the money supply is $20 trillion and velocity is 2, then nominal GDP is

Accepted Answer

A)  $2 trillion. 
B)  $10 trillion. 
C)  $20 trillion. 
D)  $40 trillion. 
A)  $2 trillion. 
B)  $10 trillion. 
C)  $20 trillion. 
D)  $40 trillion.

Question 18

If the government finances its spending by issuing debt to the public, the monetary base will ________ and the money supply will ________.

Accepted Answer

A)  increase; increase 
B)  increase; decrease 
C)  decrease; increase 
D)  not change; not change 
A)  increase; increase 
B)  increase; decrease 
C)  decrease; increase 
D)  not change; not change

Question 19

The theory of portfolio choice indicates that factors affecting the demand for money include

Accepted Answer

A)  income. 
B)  nominal interest rate. 
C)  riskiness of money. 
D)  all the above. 
A)  income. 
B)  nominal interest rate. 
C)  riskiness of money. 
D)  all the above.

Question 20

The theory of portfolio choice indicates that higher interest rates make money ________ desirable, and the demand for real money balances ________.

Accepted Answer

A)  less; falls 
B)  more; falls 
C)  less; rises 
D)  more; rises 
A)  less; falls 
B)  more; falls 
C)  less; rises 
D)  more; rises

Exam 22: Quantity Theory, Inflation, and the Demand for Money

Evidence suggests that a liquidity trap is possible when

The financing of government spending by issuing debt

If the money supply is $500 and nominal income is $3,000, the velocity of money is

Irving Fisher took the view that the institutional features of the economy which affect velocity change ________ over time so that velocity will be fairly ________ in the short run.

The Keynesian theory of money demand emphasizes the importance of

If the money supply is $600 and nominal income is $3,000, the velocity of money is

The Baumol-Tobin analysis suggests that a decrease in the brokerage fee for buying and selling bonds will cause the demand for money to ________ and the demand for bonds to ________.

In the early 1990s, M2 growth underwent a dramatic ________, which some researchers believe ________ be explained by traditional money demand functions.

The classical economists' contention that prices double when the money supply doubles is predicated on the belief that in the short run velocity is ________ and real GDP is ________.

The average number of times that a dollar is spent in buying the total amount of final goods and services produced during a given time period is known as

If initially the money supply is $1 trillion, velocity is 5, the price level is 1, and real GDP is $5 trillion, an increase in the money supply to $2 trillion

The Baumol-Tobin analysis suggests that

In Irving Fisher's quantity theory of money, velocity was determined by

Keynes's theory of the demand for money is consistent with

Financing government spending by selling bonds to the public, which pays for the bonds with currency,

Tobin's model of the speculative demand for money shows that people hold money as a store of wealth as a way of

If the money supply is $20 trillion and velocity is 2, then nominal GDP is

If the government finances its spending by issuing debt to the public, the monetary base will ________ and the money supply will ________.

The theory of portfolio choice indicates that factors affecting the demand for money include

The theory of portfolio choice indicates that higher interest rates make money ________ desirable, and the demand for real money balances ________.

Why Study Money, Banking, and Financial Markets

An Overview of the Financial System

What Is Money

Understanding Interest Rates

The Behavior of Interest Rates

The Risk and Term Structure of Interest Rates

The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis

An Economic Analysis of Financial Structure

Financial Crises

Banking and the Management of Financial Institutions

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Nonbank Finance

Financial Derivatives

Conflicts of Interest in the Financial Industry

Central Banks and the Federal Reserve System

The Money Supply Process

Tools of Monetary Policy

The Conduct of Monetary Policy: Strategy and Tactics

The Foreign Exchange Market

The International Financial System

Aggregate Demand and Supply Analysis

Monetary Policy Theory

Transmission Mechanisms of Monetary Policy

Filters

Irving Fisher took the view that the institutional features of the economy which affect velocity change over time so that velocity will be fairly in the short run.

The Baumol-Tobin analysis suggests that a decrease in the brokerage fee for buying and selling bonds will cause the demand for money to and the demand for bonds to .

In the early 1990s, M2 growth underwent a dramatic , which some researchers believe be explained by traditional money demand functions.

The classical economists' contention that prices double when the money supply doubles is predicated on the belief that in the short run velocity is and real GDP is .

If the government finances its spending by issuing debt to the public, the monetary base will and the money supply will .

The theory of portfolio choice indicates that higher interest rates make money desirable, and the demand for real money balances .