Question 1

If nominal GDP is $8 trillion,and the money supply is $2 trillion,velocity is

Accepted Answer

A) 0.25. 
B) 4. 
C) 8. 
D) 16. 
A) 0.25. 
B) 4. 
C) 8. 
D) 16.

Question 2

The quantity theory of inflation indicates that the inflation rate equals

Accepted Answer

A) the growth rate of the money supply minus the growth rate of aggregate output. 
B) the level of the money supply minus the level of aggregate output. 
C) the growth rate of the money supply plus the growth rate of aggregate output. 
D) the level of the money supply plus the level of aggregate output. 
A) the growth rate of the money supply minus the growth rate of aggregate output. 
B) the level of the money supply minus the level of aggregate output. 
C) the growth rate of the money supply plus the growth rate of aggregate output. 
D) the level of the money supply plus the level of aggregate output.

Question 3

Velocity is defined as

Accepted Answer

A) P + M + Y. 
B) (P × M)/Y. 
C) (Y × M)/P. 
D) (P × Y)/M. 
A) P + M + Y. 
B) (P × M)/Y. 
C) (Y × M)/P. 
D) (P × Y)/M.

Question 4

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 5

Keynes's theory of the demand for money implies that velocity is

Accepted Answer

A) not constant but fluctuates with movements in interest rates. 
B) not constant but fluctuates with movements in the price level. 
C) not constant but fluctuates with movements in the time of year. 
D) a constant. 
A) not constant but fluctuates with movements in interest rates. 
B) not constant but fluctuates with movements in the price level. 
C) not constant but fluctuates with movements in the time of year. 
D) a constant.

Question 6

The classical economists believed that if the quantity of money doubled

Accepted Answer

A) output would double. 
B) prices would fall. 
C) prices would double. 
D) prices would remain constant. 
A) output would double. 
B) prices would fall. 
C) prices would double. 
D) prices would remain constant.

Question 7

According to the quantity theory of money demand

Accepted Answer

A) an increase in interest rates will cause the demand for money to fall. 
B) a decrease in interest rates will cause the demand for money to increase. 
C) interest rates have no effect on the demand for money. 
D) an increase in money will cause the demand for money to fall. 
A) an increase in interest rates will cause the demand for money to fall. 
B) a decrease in interest rates will cause the demand for money to increase. 
C) interest rates have no effect on the demand for money. 
D) an increase in money will cause the demand for money to fall.

Question 8

If nominal GDP is $10 trillion,and the money supply is $2 trillion,velocity is

Accepted Answer

A) 0.2. 
B) 5. 
C) 10. 
D) 20. 
A) 0.2. 
B) 5. 
C) 10. 
D) 20.

Question 9

Because Treasury bills pay a higher return than money and have no risk

Accepted Answer

A) the transactions demand for money may be zero. 
B) the precautionary demand for money may be zero. 
C) the speculative demand for money may be zero. 
D) all three of the above motives for holding money will be zero. 
A) the transactions demand for money may be zero. 
B) the precautionary demand for money may be zero. 
C) the speculative demand for money may be zero. 
D) all three of the above motives for holding money will be zero.

Question 10

If the money supply is $500 and nominal income is $4,000,the velocity of money is

Accepted Answer

A) 1/20. 
B) 1/8. 
C) 8. 
D) 20. 
A) 1/20. 
B) 1/8. 
C) 8. 
D) 20.

Question 11

Keynes's theory of the demand for money is consistent with ________ movements in ________.

Accepted Answer

A) countercyclical;velocity 
B) procyclical;velocity 
C) countercyclical;expectations 
D) procyclical;expectations 
A) countercyclical;velocity 
B) procyclical;velocity 
C) countercyclical;expectations 
D) procyclical;expectations

Question 12

If the deficit is financed by selling bonds to the ________,the money supply will ________,causing aggregate demand to ________.

Accepted Answer

A) public;rise;increase 
B) public;fall;decrease 
C) central bank;rise;increase 
D) central bank;fall;decrease 
A) public;rise;increase 
B) public;fall;decrease 
C) central bank;rise;increase 
D) central bank;fall;decrease

Question 13

Describe what the liquidity trap is. Explain how it can be problematic for monetary policymakers.

Accepted Answer

The liquidity trap describes the situati

Question 14

Financing government spending with taxes

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 15

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

Accepted Answer

A) reduces real GDP to $2.5 trillion. 
B) causes velocity to rise to 10. 
C) decreases the price level to 1. 
D) decreases the price level to 1 and decreases velocity to 2.5. 
A) reduces real GDP to $2.5 trillion. 
B) causes velocity to rise to 10. 
C) decreases the price level to 1. 
D) decreases the price level to 1 and decreases velocity to 2.5.

Question 16

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 17

The Keynesian theory of money demand predicts that people will increase their money holdings if they believe that

Accepted Answer

A) interest rates are about to fall. 
B) bond prices are about to rise. 
C) expected inflation is about to fall. 
D) bond prices are about to fall. 
A) interest rates are about to fall. 
B) bond prices are about to rise. 
C) expected inflation is about to fall. 
D) bond prices are about to fall.

Question 18

The velocity of money is

Accepted Answer

A) the average number of times that a dollar is spent in buying the total amount of final goods and services. 
B) the ratio of the money stock to high-powered money. 
C) the ratio of the money stock to interest rates. 
D) the average number of times a dollar is spent in buying financial assets. 
A) the average number of times that a dollar is spent in buying the total amount of final goods and services. 
B) the ratio of the money stock to high-powered money. 
C) the ratio of the money stock to interest rates. 
D) the average number of times a dollar is spent in buying financial assets.

Question 19

If people expect nominal interest rates to be higher in the future,the expected return to bonds ________,and the demand for money ________.

Accepted Answer

A) rises;increases 
B) rises;decreases 
C) falls;increases 
D) falls;decreases 
A) rises;increases 
B) rises;decreases 
C) falls;increases 
D) falls;decreases

Question 20

The reason that economists are so interested in the stability of velocity is because if the demand for money is not stable,then steady growth of the money supply

Accepted Answer

A) is going to promote price stability at the expense of low unemployment. 
B) is going to promote low unemployment at the expense of price stability. 
C) is an ineffective way to conduct monetary policy. 
D) can still be used to conduct monetary policy if the goal is price stability. 
A) is going to promote price stability at the expense of low unemployment. 
B) is going to promote low unemployment at the expense of price stability. 
C) is an ineffective way to conduct monetary policy. 
D) can still be used to conduct monetary policy if the goal is price stability.

Exam 19: Quantity Theory, inflation and the Demand for Money

If nominal GDP is $8 trillion,and the money supply is $2 trillion,velocity is

The quantity theory of inflation indicates that the inflation rate equals

Velocity is defined as

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

Keynes's theory of the demand for money implies that velocity is

The classical economists believed that if the quantity of money doubled

According to the quantity theory of money demand

If nominal GDP is $10 trillion,and the money supply is $2 trillion,velocity is

Because Treasury bills pay a higher return than money and have no risk

If the money supply is $500 and nominal income is $4,000,the velocity of money is

Keynes's theory of the demand for money is consistent with ________ movements in ________.

If the deficit is financed by selling bonds to the ________,the money supply will ________,causing aggregate demand to ________.

Describe what the liquidity trap is. Explain how it can be problematic for monetary policymakers.

Financing government spending with taxes

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

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

The Keynesian theory of money demand predicts that people will increase their money holdings if they believe that

The velocity of money is

If people expect nominal interest rates to be higher in the future,the expected return to bonds ________,and the demand for money ________.

The reason that economists are so interested in the stability of velocity is because if the demand for money is not stable,then steady growth of the money supply

Why Study Money, banking, and Financial Markets

An Overview of the Financial System

What Is Money

The Meaning of 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

Banking and the Management of Financial Institutions

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Financial Crises

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

The Is Curve

The Monetary Policy and Aggregate Demand Curves

Aggregate Demand and Supply Analysis

Monetary Policy Theory

The Role of Expectations in Monetary Policy

Transmission Mechanisms of Monetary Policy

Financial Crises in Emerging Market Economies

The ISLM Model

Filters

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

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

If the deficit is financed by selling bonds to the ,the money supply will ,causing aggregate demand to .

If people expect nominal interest rates to be higher in the future,the expected return to bonds ,and the demand for money .