Question 1

The speculative motive for holding money is closely tied to what function of money?

Accepted Answer

A) store of wealth 
B) unit of account 
C) medium of exchange 
D) standard of deferred payment 
A) store of wealth 
B) unit of account 
C) medium of exchange 
D) standard of deferred payment

Question 2

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 3

Cutting the money supply by one-third is predicted by the quantity theory of money to cause

Accepted Answer

A) a sharp decline in real output of one-third in the short run,and a fall in the price level by one-third in the long run. 
B) a decline in real output by one-third. 
C) a decline in output by one-sixth,and a decline in the price level of one-sixth. 
D) a decline in the price level by one-third. 
A) a sharp decline in real output of one-third in the short run,and a fall in the price level by one-third in the long run. 
B) a decline in real output by one-third. 
C) a decline in output by one-sixth,and a decline in the price level of one-sixth. 
D) a decline in the price level by one-third.

Question 4

The quantity theory of money is a theory of how

Accepted Answer

A) the money supply is determined. 
B) interest rates are determined. 
C) the nominal value of aggregate income is determined. 
D) the real value of aggregate income is determined. 
A) the money supply is determined. 
B) interest rates are determined. 
C) the nominal value of aggregate income is determined. 
D) the real value of aggregate income is determined.

Question 5

In the liquidity trap a small change in interest rates produces ________ change in the quantity of money demanded.

Accepted Answer

A) a small 
B) no 
C) a proportionate 
D) a very large 
A) a small 
B) no 
C) a proportionate 
D) a very large

Question 6

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

Accepted Answer

A) $1 trillion. 
B) $5 trillion. 
C) $10 trillion. 
D) $100 trillion. 
A) $1 trillion. 
B) $5 trillion. 
C) $10 trillion. 
D) $100 trillion.

Question 7

The portfolio theories of money demand state that the demand for real money balances is ________ related to income and ________ related to the nominal interest rate.

Accepted Answer

A) positively;negatively 
B) positively;positively 
C) negatively;negatively 
D) negatively;positively 
A) positively;negatively 
B) positively;positively 
C) negatively;negatively 
D) negatively;positively

Question 8

The Keynesian demand for real balances can be expressed as

Accepted Answer

A) Md = f(i,Y). 
B) Md/P = f(i). 
C) Md/P = f(Y). 
D) Md/P = f(i,Y). 
A) Md = f(i,Y). 
B) Md/P = f(i). 
C) Md/P = f(Y). 
D) Md/P = f(i,Y).

Question 9

Keynes argued that when interest rates were low relative to some normal value,people would expect bond prices to ________ so the quantity of money demanded would ________.

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 10

Empirical evidence shows that the quantity theory of money is a good theory of inflation

Accepted Answer

A) in the long run,but not in the short run. 
B) in the short run,but not in the longrun. 
C) in both the long run and the short run. 
D) not in either the long run nor the short run. 
A) in the long run,but not in the short run. 
B) in the short run,but not in the longrun. 
C) in both the long run and the short run. 
D) not in either the long run nor the short run.

Question 11

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 12

The speculative demand for money may not exist because

Accepted Answer

A) banks now pay interest on some types of checkable deposits. 
B) there are alternative riskless assets paying higher returns than the return on money. 
C) the transactions demand can be shown to depend on interest rates. 
D) government regulations have eliminated risk in the financial markets. 
A) banks now pay interest on some types of checkable deposits. 
B) there are alternative riskless assets paying higher returns than the return on money. 
C) the transactions demand can be shown to depend on interest rates. 
D) government regulations have eliminated risk in the financial markets.

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

The speculative motive for holding money is closely tied to what function of money?

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

Cutting the money supply by one-third is predicted by the quantity theory of money to cause

The quantity theory of money is a theory of how

In the liquidity trap a small change in interest rates produces ________ change in the quantity of money demanded.

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

The portfolio theories of money demand state that the demand for real money balances is ________ related to income and ________ related to the nominal interest rate.

The Keynesian demand for real balances can be expressed as

Keynes argued that when interest rates were low relative to some normal value,people would expect bond prices to ________ so the quantity of money demanded would ________.

Empirical evidence shows that the quantity theory of money is a good theory of inflation

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

The speculative demand for money may not exist because

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

The portfolio theories of money demand state that the demand for real money balances is related to income and related to the nominal interest rate.

Keynes argued that when interest rates were low relative to some normal value,people would expect bond prices to so the quantity of money demanded would .