Question 1

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 2

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 3

The equation of exchange is

Accepted Answer

A) M × P = V × Y. 
B) M + V = P + Y. 
C) M + Y = V + P. 
D) M × V = P × Y. 
A) M × P = V × Y. 
B) M + V = P + Y. 
C) M + Y = V + P. 
D) M × V = P × Y.

Question 4

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

Accepted Answer

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

Question 5

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 6

The finance of government spending through a Treasury sale of bonds which are then purchased by the Fed

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 7

If the government finances its spending by selling bonds to the central bank,the monetary base will ________ and the money supply will ________.

Accepted Answer

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

Question 8

The quantity theory of inflation indicates that if the aggregate output is growing at 3% per year and the growth rate of money is 5%,then inflation is

Accepted Answer

A) 2%. 
B) 8%. 
C) -2%. 
D) 1.6%. 
A) 2%. 
B) 8%. 
C) -2%. 
D) 1.6%.

Question 9

The classical economists' conclusion that nominal income is determined by movements in the money supply rested on their belief that ________ could be treated as ________ in the short run.

Accepted Answer

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

Question 10

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

Question 11

The Baumol-Tobin analysis suggests that an increase 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;increase 
D) decrease;decrease 
A) increase;increase 
B) increase;decrease 
C) decrease;increase 
D) decrease;decrease

Question 12

If the deficit is financed by selling bonds to the ________,the money supply will ________,increasing aggregate demand,and leading to a rise in the price level.

Accepted Answer

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

Question 13

If there are economies of scale in the transactions demand for money,as income increases,money demand

Accepted Answer

A) increases proportionately. 
B) increases less than proportionately. 
C) increases more than proportionately. 
D) does not change. 
A) increases proportionately. 
B) increases less than proportionately. 
C) increases more than proportionately. 
D) does not change.

Question 14

If the money supply is $600 and nominal income is $3,600,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 15

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 16

The view that velocity is constant in the short run transforms the equation of exchange into the quantity theory of money.According to the quantity theory of money,when the money supply doubles

Accepted Answer

A) velocity falls by 50 percent. 
B) velocity doubles. 
C) nominal incomes falls by 50 percent. 
D) nominal income doubles. 
A) velocity falls by 50 percent. 
B) velocity doubles. 
C) nominal incomes falls by 50 percent. 
D) nominal income doubles.

Question 17

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 18

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

Accepted Answer

A) income. 
B) nominal interest rate. 
C) liquidity of other assets. 
D) all the above. 
A) income. 
B) nominal interest rate. 
C) liquidity of other assets. 
D) all the above.

Question 19

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 20

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.

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

According to the quantity theory of money demand

The Baumol-Tobin analysis suggests that

The equation of exchange is

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

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 finance of government spending through a Treasury sale of bonds which are then purchased by the Fed

If the government finances its spending by selling bonds to the central bank,the monetary base will ________ and the money supply will ________.

The quantity theory of inflation indicates that if the aggregate output is growing at 3% per year and the growth rate of money is 5%,then inflation is

The classical economists' conclusion that nominal income is determined by movements in the money supply rested on their belief that ________ could be treated as ________ in the short run.

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

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

If the deficit is financed by selling bonds to the ________,the money supply will ________,increasing aggregate demand,and leading to a rise in the price level.

If there are economies of scale in the transactions demand for money,as income increases,money demand

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

The Keynesian theory of money demand emphasizes the importance of

The view that velocity is constant in the short run transforms the equation of exchange into the quantity theory of money.According to the quantity theory of money,when the money supply doubles

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

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

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

The velocity of money is

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

Web 1:financial Crises in Emerging Market Economies

Web 2:the Islm Model

Web 3:nonbank Finance

Web 4:financial Derivatives

Web 5:conflicts of Interest in the Financial Services Industry

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

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 selling bonds to the central bank,the monetary base will and the money supply will .

The classical economists' conclusion that nominal income is determined by movements in the money supply rested on their belief that could be treated as in the short run.

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

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

If the deficit is financed by selling bonds to the ,the money supply will ,increasing aggregate demand,and leading to a rise in the price level.