Question 1

Financing government spending by selling bonds to the public,which pays for the bonds with currency,

Accepted Answer

A)  leads to a permanent decline in the monetary base. 
B)  leads to a permanent increase in the monetary base. 
C)  leads to a temporary increase in the monetary base. 
D)  has no net effect on the monetary base. 
A)  leads to a permanent decline in the monetary base. 
B)  leads to a permanent increase in the monetary base. 
C)  leads to a temporary increase in the monetary base. 
D)  has no net effect on the monetary base.

Question 2

If the deficit is financed by selling bonds to the ________,the money supply will ________,causing aggregate demand to ________.

Accepted Answer

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

Question 3

Keynes's theory of the demand for money is consistent with ________ movements in ________.

Accepted Answer

A)  countercyclical; velocity 
B)  procyclical; velocity 
C)  countercyclical; expectations 
D)  procyclical; expectations 
A)  countercyclical; velocity 
B)  procyclical; velocity 
C)  countercyclical; expectations 
D)  procyclical; expectations

Question 4

The financing of government spending by issuing debt

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

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

Accepted Answer

A)  from proportional changes in the quantity of money. 
B)  primarily from changes in the quantity of money. 
C)  only partially from changes in the quantity of money. 
D)  from changes in factors other than the quantity of money. 
A)  from proportional changes in the quantity of money. 
B)  primarily from changes in the quantity of money. 
C)  only partially from changes in the quantity of money. 
D)  from changes in factors other than the quantity of money.

Question 6

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 7

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 8

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 9

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

Accepted Answer

A)  severely underpredict the demand for money. 
B)  severely overpredict the demand for money. 
C)  predict more precisely the demand for money. 
D)  do none of the above. 
A)  severely underpredict the demand for money. 
B)  severely overpredict the demand for money. 
C)  predict more precisely the demand for money. 
D)  do none of the above.

Question 10

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

Accepted Answer

A)  not constant but fluctuates with movements in interest rates. 
B)  not constant but fluctuates with movements in the price level. 
C)  not constant but fluctuates with movements in the time of year. 
D)  a constant. 
A)  not constant but fluctuates with movements in interest rates. 
B)  not constant but fluctuates with movements in the price level. 
C)  not constant but fluctuates with movements in the time of year. 
D)  a constant.

Question 11

If nominal GDP is $10 trillion,and the money supply is $2 trillion,velocity is

Accepted Answer

A)  0.2. 
B)  5. 
C)  10. 
D)  20. 
A)  0.2. 
B)  5. 
C)  10. 
D)  20.

Question 12

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 13

In the Baumol-Tobin model,given that total costs for an individual equals   +   ,where T0 = monthly income,b = brokerage costs,and C = amount raised from each bond transaction,derive the so-called square root rule.

Accepted Answer

An individual will minimize their costs.

Question 14

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 15

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

Accepted Answer

A)  1/20. 
B)  1/8. 
C)  8. 
D)  20. 
A)  1/20. 
B)  1/8. 
C)  8. 
D)  20.

Question 16

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 17

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 18

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

Accepted Answer

The liquidity trap describes the situati

Question 19

Comparing Tobin's model of the speculative demand for money with Keynesian speculative demand

Accepted Answer

A)  both models imply that individuals hold only money or only bonds. 
B)  the Keynesian model implies individuals diversify their asset holdings, while the Tobin model predicts that individuals hold only money or only bonds. 
C)  the Tobin model implies individuals diversify their asset holdings, while the Keynesian model predicts that individuals hold only money or only bonds. 
D)  both models imply that individuals diversify their asset holdings. 
A)  both models imply that individuals hold only money or only bonds. 
B)  the Keynesian model implies individuals diversify their asset holdings, while the Tobin model predicts that individuals hold only money or only bonds. 
C)  the Tobin model implies individuals diversify their asset holdings, while the Keynesian model predicts that individuals hold only money or only bonds. 
D)  both models imply that individuals diversify their asset holdings.

Question 20

Methods of financing government spending are described by an expression called the government budget constraint,which states the following:

Accepted Answer

A)  the government budget deficit must equal the sum of the change in the monetary base and the change in government bonds held by the public. 
B)  the government budget deficit must equal the difference between the change in the monetary base and the change in government bonds held by the public. 
C)  the government budget deficit must equal the difference between the change in the monetary base and the change in government bonds held by the Fed. 
D)  the government budget deficit must equal the difference between the change in the monetary base and the change in government bonds held by the Treasury. 
A)  the government budget deficit must equal the sum of the change in the monetary base and the change in government bonds held by the public. 
B)  the government budget deficit must equal the difference between the change in the monetary base and the change in government bonds held by the public. 
C)  the government budget deficit must equal the difference between the change in the monetary base and the change in government bonds held by the Fed. 
D)  the government budget deficit must equal the difference between the change in the monetary base and the change in government bonds held by the Treasury.

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

Financing government spending by selling bonds to the public,which pays for the bonds with currency,

If the deficit is financed by selling bonds to the ________,the money supply will ________,causing aggregate demand to ________.

Keynes's theory of the demand for money is consistent with ________ movements in ________.

The financing of government spending by issuing debt

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

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

The Baumol-Tobin analysis suggests that

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 ________.

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

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

If nominal GDP is $10 trillion,and the money supply is $2 trillion,velocity is

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

In the Baumol-Tobin model,given that total costs for an individual equals + ,where T0 = monthly income,b = brokerage costs,and C = amount raised from each bond transaction,derive the so-called square root rule.

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

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

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

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

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

Comparing Tobin's model of the speculative demand for money with Keynesian speculative demand

Methods of financing government spending are described by an expression called the government budget constraint,which states the following:

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

If the deficit is financed by selling bonds to the ,the money supply will ,causing aggregate demand to .

Keynes's theory of the demand for money is consistent with movements in .

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 .

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