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

This method of financing government spending is frequently called printing money because high-powered money (the monetary base)is created in the process.

For the classical economists,the quantity theory of money provided an explanation of movements in the price level.Changes in the price level result

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

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

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

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

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

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

Researchers at the Federal Reserve found that M2 money demand functions performed ________ in the 1980s,with M2 velocity moving ________ with the opportunity cost of holding M2.

Keynes hypothesized that the transactions component of money demand was primarily determined by the level of

Starting in 1974,the conventional M1 money demand function began to

Keynes's model of the demand for money suggests that velocity is

Of the three motives for holding money suggested by Keynes,which did he believe to be the most sensitive to interest rates?

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

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.

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

Because the quantity theory of money tells us how much money is held for a given amount of aggregate income,it is also a theory of

The financing of government spending by issuing debt

Keynes's liquidity preference theory indicates that the demand for money

The evidence on the interest sensitivity of the demand for money suggests that the demand for money is ________ to interest rates,and there is ________ evidence that a liquidity trap exists.