Question 1

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 2

If initially the money supply is $1 trillion,velocity is 5,the price level is 1,and real GDP is $5 trillion,an increase in the money supply to $2 trillion

Accepted Answer

A)  increases real GDP to $10 trillion. 
B)  causes velocity to fall to 2.5. 
C)  increases the price level to 2. 
D)  increases the price level to 2 and velocity to 10. 
A)  increases real GDP to $10 trillion. 
B)  causes velocity to fall to 2.5. 
C)  increases the price level to 2. 
D)  increases the price level to 2 and velocity to 10.

Question 3

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 4

Tobin's model of the speculative demand for money shows that people hold money as a ________ as a way of reducing ________.

Accepted Answer

A)  medium of exchange; transaction costs 
B)  medium of exchange; risk 
C)  store of wealth; transaction costs 
D)  store of wealth; risk 
A)  medium of exchange; transaction costs 
B)  medium of exchange; risk 
C)  store of wealth; transaction costs 
D)  store of wealth; risk

Question 5

Keynes argued that the precautionary component of the demand for money was primarily determined by the level of people's ________,which he believed were proportional to ________.

Accepted Answer

A)  incomes; wealth 
B)  incomes; age 
C)  transactions; income 
D)  transactions; age 
A)  incomes; wealth 
B)  incomes; age 
C)  transactions; income 
D)  transactions; age

Question 6

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 7

Keynes's liquidity preference theory indicates that the demand for money is ________ related to ________.

Accepted Answer

A)  negatively; interest rates 
B)  positively; interest rates 
C)  negatively; income 
D)  negatively; wealth 
A)  negatively; interest rates 
B)  positively; interest rates 
C)  negatively; income 
D)  negatively; wealth

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 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 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 11

Only when budget deficits are financed by money creation does the increased government spending lead to ________ in the ________.

Accepted Answer

A)  a decrease; monetary base 
B)  an increase; monetary base 
C)  a decrease; money multiplier 
D)  an increase; money multiplier 
A)  a decrease; monetary base 
B)  an increase; monetary base 
C)  a decrease; money multiplier 
D)  an increase; money multiplier

Question 12

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 13

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 14

The equation of exchange states that the quantity of money multiplied by the number of times this money is spent in a given year must equal

Accepted Answer

A)  nominal income. 
B)  real income. 
C)  real gross national product. 
D)  velocity. 
A)  nominal income. 
B)  real income. 
C)  real gross national product. 
D)  velocity.

Question 15

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 16

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 17

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.

Question 18

Explain the Keynesian theory of money demand.What motives did Keynes think determined money demand? What are the two reasons why Keynes thought velocity could not be treated as a constant?

Accepted Answer

Keynes believed the demand for money dep

Question 19

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 20

The quantity theory of inflation indicates that the inflation rate equals

Accepted Answer

A)  the growth rate of the money supply minus the growth rate of aggregate output. 
B)  the level of the money supply minus the level of aggregate output. 
C)  the growth rate of the money supply plus the growth rate of aggregate output. 
D)  the level of the money supply plus the level of aggregate output. 
A)  the growth rate of the money supply minus the growth rate of aggregate output. 
B)  the level of the money supply minus the level of aggregate output. 
C)  the growth rate of the money supply plus the growth rate of aggregate output. 
D)  the level of the money supply plus the level of aggregate output.

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

The equation of exchange is

If initially the money supply is $1 trillion,velocity is 5,the price level is 1,and real GDP is $5 trillion,an increase in the money supply to $2 trillion

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

Tobin's model of the speculative demand for money shows that people hold money as a ________ as a way of reducing ________.

Keynes argued that the precautionary component of the demand for money was primarily determined by the level of people's ________,which he believed were proportional to ________.

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

Keynes's liquidity preference theory indicates that the demand for money is ________ related to ________.

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

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 Keynesian theory of money demand emphasizes the importance of

Only when budget deficits are financed by money creation does the increased government spending lead to ________ in the ________.

The velocity of money is defined as

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

The equation of exchange states that the quantity of money multiplied by the number of times this money is spent in a given year must equal

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

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

The velocity of money is

Explain the Keynesian theory of money demand.What motives did Keynes think determined money demand? What are the two reasons why Keynes thought velocity could not be treated as a constant?

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

The quantity theory of inflation indicates that the inflation rate equals

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

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

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

Keynes argued that the precautionary component of the demand for money was primarily determined by the level of people's ,which he believed were proportional to .

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

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.

Only when budget deficits are financed by money creation does the increased government spending lead to in the .

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