Question 1

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

Accepted Answer

A)  is purely a function of income, and interest rates have no effect on the demand for money. 
B)  is purely a function of interest rates, and income has no effect on the demand for money. 
C)  is a function of both income and interest rates. 
D)  is a function of both government spending and income. 
A)  is purely a function of income, and interest rates have no effect on the demand for money. 
B)  is purely a function of interest rates, and income has no effect on the demand for money. 
C)  is a function of both income and interest rates. 
D)  is a function of both government spending and income. C

Question 2

In the equation of exchange,the concept that provides the link between M and PY is called

Accepted Answer

A)  the velocity of money. 
B)  aggregate demand. 
C)  aggregate supply. 
D)  the money multiplier. 
A)  the velocity of money. 
B)  aggregate demand. 
C)  aggregate supply. 
D)  the money multiplier. A

Question 3

In the late 1990s,M2 velocity ________,suggesting a ________ normal relationship between M2 and macroeconomic variables.

Accepted Answer

A)  stabilized; less 
B)  stabilized; more 
C)  slowed; less 
D)  slowed; more 
A)  stabilized; less 
B)  stabilized; more 
C)  slowed; less 
D)  slowed; more B

Question 4

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 5

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.

Accepted Answer

A)  rapidly; erratic 
B)  rapidly; stable 
C)  slowly; stable 
D)  slowly; erratic 
A)  rapidly; erratic 
B)  rapidly; stable 
C)  slowly; stable 
D)  slowly; erratic

Question 6

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 7

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 8

In the liquidity trap,the money demand curve

Accepted Answer

A)  is horizontal. 
B)  is vertical. 
C)  is negatively sloped. 
D)  is positively sloped. 
A)  is horizontal. 
B)  is vertical. 
C)  is negatively sloped. 
D)  is positively sloped.

Question 9

Because Keynes assumed that the expected return on money was zero,he argued that people would

Accepted Answer

A)  never hold money. 
B)  never hold money as a store of wealth. 
C)  hold money as a store of wealth when the expected return on bonds was negative. 
D)  hold money as a store of wealth only when forced to by government policy. 
A)  never hold money. 
B)  never hold money as a store of wealth. 
C)  hold money as a store of wealth when the expected return on bonds was negative. 
D)  hold money as a store of wealth only when forced to by government policy.

Question 10

If the money supply is $500 and nominal income is $3,000,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 11

Evidence suggests that a liquidity trap is possible when

Accepted Answer

A)  real interest rates are at zero. 
B)  real interest rates are at or just above zero. 
C)  nominal interest rates are at zero. 
D)  nominal interest rates are at or just above zero. 
A)  real interest rates are at zero. 
B)  real interest rates are at or just above zero. 
C)  nominal interest rates are at zero. 
D)  nominal interest rates are at or just above zero.

Question 12

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.

Accepted Answer

A)  sensitive; substantial 
B)  sensitive; little 
C)  insensitive; substantial 
D)  insensitive; little 
A)  sensitive; substantial 
B)  sensitive; little 
C)  insensitive; substantial 
D)  insensitive; little

Question 13

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 14

In the Baumol-Tobin analysis of transactions demand for money,either an increase in ________ or a decrease in ________ increases money demand.

Accepted Answer

A)  income; interest rate 
B)  interest rates; brokerage fees 
C)  brokerage fees; income 
D)  interest rate; income 
A)  income; interest rate 
B)  interest rates; brokerage fees 
C)  brokerage fees; income 
D)  interest rate; income

Question 15

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 16

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 17

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

Accepted Answer

A)  interest rates. 
B)  velocity. 
C)  income. 
D)  stock market prices. 
A)  interest rates. 
B)  velocity. 
C)  income. 
D)  stock market prices.

Question 18

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 19

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

Accepted Answer

A)  interest rates. 
B)  velocity. 
C)  income. 
D)  stock market prices. 
A)  interest rates. 
B)  velocity. 
C)  income. 
D)  stock market prices.

Question 20

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

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

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

In the equation of exchange,the concept that provides the link between M and PY is called

In the late 1990s,M2 velocity ________,suggesting a ________ normal relationship between M2 and macroeconomic variables.

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

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.

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

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

In the liquidity trap,the money demand curve

Because Keynes assumed that the expected return on money was zero,he argued that people would

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

Evidence suggests that a liquidity trap is possible when

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.

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

In the Baumol-Tobin analysis of transactions demand for money,either an increase in ________ or a decrease in ________ increases money demand.

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 ________."

Velocity is defined as

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

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

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

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 ________.

Why Study Money, banking, and Financial Markets

An Overview of the Financial System

What Is Money

Understanding 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

Financial Crises

Banking and the Management of Financial Institutions

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

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

The ISLM Model

Filters

In the late 1990s,M2 velocity ,suggesting a normal relationship between M2 and macroeconomic variables.

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.

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.

In the Baumol-Tobin analysis of transactions demand for money,either an increase in or a decrease in increases money demand.

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 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 .