Question 1

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

Accepted Answer

A) constant. 
B) positively related to interest rates. 
C) negatively related to interest rates. 
D) negatively related to bond values. 
A) constant. 
B) positively related to interest rates. 
C) negatively related to interest rates. 
D) negatively related to bond values.

Question 2

What factors determine the demand for money in the Baumol-Tobin analysis of transactions demand for money? How does a change in each factor affect the quantity of money demanded?

Accepted Answer

The factors are real income,the price le

Question 3

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 4

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 5

The demand for money as a cushion against unexpected contingencies is called the

Accepted Answer

A) transactions motive. 
B) precautionary motive. 
C) insurance motive. 
D) speculative motive. 
A) transactions motive. 
B) precautionary motive. 
C) insurance motive. 
D) speculative motive.

Question 6

In one of the earliest studies on the link between interest rates and money demand using United States data,James Tobin concluded that the demand for money is

Accepted Answer

A) sensitive to interest rates. 
B) not sensitive to interest rates. 
C) not sensitive to changes in income. 
D) not sensitive to changes in bond values. 
A) sensitive to interest rates. 
B) not sensitive to interest rates. 
C) not sensitive to changes in income. 
D) not sensitive to changes in bond values.

Question 7

If the money supply is $2 trillion and velocity is 5,then nominal GDP is

Accepted Answer

A) $1 trillion. 
B) $2 trillion. 
C) $5 trillion. 
D) $10 trillion. 
A) $1 trillion. 
B) $2 trillion. 
C) $5 trillion. 
D) $10 trillion.

Question 8

Irving Fisher's view that velocity is fairly constant in the short run transforms the equation of exchange into the

Accepted Answer

A) Friedman's theory of income determination. 
B) quantity theory of money. 
C) Keynesian theory of income determination. 
D) monetary theory of income determination. 
A) Friedman's theory of income determination. 
B) quantity theory of money. 
C) Keynesian theory of income determination. 
D) monetary theory of income determination.

Question 9

The absence of money illusion means that

Accepted Answer

A) as real income doubles,the demand for money doubles. 
B) as interest rates double,the demand for money doubles. 
C) as the money supply doubles,the demand for money doubles. 
D) as the price level doubles,the demand for money doubles. 
A) as real income doubles,the demand for money doubles. 
B) as interest rates double,the demand for money doubles. 
C) as the money supply doubles,the demand for money doubles. 
D) as the price level doubles,the demand for money doubles.

Question 10

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.

Question 11

In the Baumol-Tobin analysis of transactions demand,scale economies imply that an increase in real income increases the quantity of money demanded ________,while an increase in the price level increases the quantity of money demanded ________.

Accepted Answer

A) proportionately;less than proportionately 
B) more than proportionately;proportionately 
C) less than proportionately;proportionately 
D) proportionately;more than proportionately 
A) proportionately;less than proportionately 
B) more than proportionately;proportionately 
C) less than proportionately;proportionately 
D) proportionately;more than proportionately

Question 12

As interest rates rise,the expected absolute return of money ________,money's expected return relative to bonds ________.

Accepted Answer

A) does not change;decrease 
B) rises;decrease 
C) does not change;increase 
D) falls;decrease 
A) does not change;decrease 
B) rises;decrease 
C) does not change;increase 
D) falls;decrease

Question 13

The velocity of money is defined as

Accepted Answer

A) real GDP divided by the money supply. 
B) nominal GDP divided by the money supply. 
C) real GDP times the money supply. 
D) nominal GDP times the money supply. 
A) real GDP divided by the money supply. 
B) nominal GDP divided by the money supply. 
C) real GDP times the money supply. 
D) nominal GDP times the money supply.

Question 14

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 15

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 16

According to Keynes's theory of liquidity preference,velocity increases when

Accepted Answer

A) income increases. 
B) wealth increases. 
C) brokerage commissions increase. 
D) interest rates increase. 
A) income increases. 
B) wealth increases. 
C) brokerage commissions increase. 
D) interest rates increase.

Question 17

Because interest rates have substantial fluctuations,the ________ theory of the demand for money indicates that velocity has substantial fluctuations as well.

Accepted Answer

A) classical 
B) Cambridge 
C) liquidity preference 
D) Pigouvian 
A) classical 
B) Cambridge 
C) liquidity preference 
D) Pigouvian

Question 18

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 19

Starting in 1974,the conventional M1 money demand function began to severely ________ the demand for money.Stephen Goldfeld labeled this phenomenon "the case of the missing ________."

Accepted Answer

A) underpredict;velocity 
B) overpredict;velocity 
C) underpredict;money 
D) overpredict;money 
A) underpredict;velocity 
B) overpredict;velocity 
C) underpredict;money 
D) overpredict;money

Question 20

Keynes's model of the demand for money suggests that velocity is ________ related to ________.

Accepted Answer

A) positively;interest rates 
B) negatively;interest rates 
C) positively;bond values 
D) positively;stock prices 
A) positively;interest rates 
B) negatively;interest rates 
C) positively;bond values 
D) positively;stock prices

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

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

What factors determine the demand for money in the Baumol-Tobin analysis of transactions demand for money? How does a change in each factor affect the quantity of money demanded?

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

Financing government spending with taxes

The demand for money as a cushion against unexpected contingencies is called the

In one of the earliest studies on the link between interest rates and money demand using United States data,James Tobin concluded that the demand for money is

If the money supply is $2 trillion and velocity is 5,then nominal GDP is

Irving Fisher's view that velocity is fairly constant in the short run transforms the equation of exchange into the

The absence of money illusion means that

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

In the Baumol-Tobin analysis of transactions demand,scale economies imply that an increase in real income increases the quantity of money demanded ________,while an increase in the price level increases the quantity of money demanded ________.

As interest rates rise,the expected absolute return of money ________,money's expected return relative to bonds ________.

The velocity of money is defined as

Velocity is defined as

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

According to Keynes's theory of liquidity preference,velocity increases when

Because interest rates have substantial fluctuations,the ________ theory of the demand for money indicates that velocity has substantial fluctuations as well.

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 ________.

Starting in 1974,the conventional M1 money demand function began to severely ________ the demand for money.Stephen Goldfeld labeled this phenomenon "the case of the missing ________."

Keynes's model of the demand for money suggests that velocity is ________ related to ________.

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

Filters

In the Baumol-Tobin analysis of transactions demand,scale economies imply that an increase in real income increases the quantity of money demanded ,while an increase in the price level increases the quantity of money demanded .

As interest rates rise,the expected absolute return of money ,money's expected return relative to bonds .

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 .

Starting in 1974,the conventional M1 money demand function began to severely the demand for money.Stephen Goldfeld labeled this phenomenon "the case of the missing ."

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