Question 1

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.

Question 2

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 3

In a liquidity trap,monetary policy has ________ effect on aggregate spending because a change in the money supply has ________ effect on interest rates.

Accepted Answer

A) no;no 
B) no;a large 
C) no;a small 
D) a large;a large 
A) no;no 
B) no;a large 
C) no;a small 
D) a large;a large

Question 4

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 5

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 6

If the government finances its spending by issuing debt to the public,the monetary base will ________ and the money supply will ________.

Accepted Answer

A) increase;increase 
B) increase;decrease 
C) decrease;increase 
D) not change;not change 
A) increase;increase 
B) increase;decrease 
C) decrease;increase 
D) not change;not change

Question 7

Conventional money demand functions tended to ________ money demand in the middle and late 1970s,and ________ velocity beginning in 1982.

Accepted Answer

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

Question 8

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 9

Keynes hypothesized that the transactions 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 10

If the money supply is $600 and nominal income is $3,000,the velocity of money is

Accepted Answer

A) 1/50. 
B) 1/5. 
C) 5. 
D) 50. 
A) 1/50. 
B) 1/5. 
C) 5. 
D) 50.

Question 11

If the money supply is $600 and nominal income is $3,600,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 12

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 13

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 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

The portfolio theories of money demand state that when income (and therefore,wealth)is higher,the demand for the money asset will ________ and the demand for real money balances will be ________.

Accepted Answer

A) rise;higher 
B) rise;lower 
C) fall;higher 
D) fall;lower 
A) rise;higher 
B) rise;lower 
C) fall;higher 
D) fall;lower

Question 16

In Irving Fisher's quantity theory of money,velocity was determined by

Accepted Answer

A) interest rates. 
B) real GDP. 
C) the institutions in an economy that affect individuals' transactions. 
D) the price level. 
A) interest rates. 
B) real GDP. 
C) the institutions in an economy that affect individuals' transactions. 
D) the price level.

Question 17

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 18

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 19

The Keynesian theory of money demand predicts that people will increase their money holdings if they believe that

Accepted Answer

A) interest rates are about to fall. 
B) bond prices are about to rise. 
C) expected inflation is about to fall. 
D) bond prices are about to fall. 
A) interest rates are about to fall. 
B) bond prices are about to rise. 
C) expected inflation is about to fall. 
D) bond prices are about to fall.

Question 20

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

Exam 22: Quantity Theory, inflation and the Demand for Money

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

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.

In a liquidity trap,monetary policy has ________ effect on aggregate spending because a change in the money supply has ________ effect on interest rates.

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

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

If the government finances its spending by issuing debt to the public,the monetary base will ________ and the money supply will ________.

Conventional money demand functions tended to ________ money demand in the middle and late 1970s,and ________ velocity beginning in 1982.

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.

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

If the money supply is $600 and nominal income is $3,000,the velocity of money is

If the money supply is $600 and nominal income is $3,600,the velocity of money is

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

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

Velocity is defined as

The portfolio theories of money demand state that when income (and therefore,wealth)is higher,the demand for the money asset will ________ and the demand for real money balances will be ________.

In Irving Fisher's quantity theory of money,velocity was determined by

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

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

The Keynesian theory of money demand predicts that people will increase their money holdings if they believe that

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

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

Nonbank Finance

Financial Derivatives

Conflicts of Interest in the Financial Industry

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

Aggregate Demand and Supply Analysis

Monetary Policy Theory

Transmission Mechanisms of Monetary Policy

Financial Crises in Emerging Market Economies

The IS Curve

The Monetary Policy and Aggregate Demand Curves

The Role of Expectations in Monetary Policy

The ISLM Model

Filters

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.

In a liquidity trap,monetary policy has effect on aggregate spending because a change in the money supply has effect on interest rates.

If the government finances its spending by issuing debt to the public,the monetary base will and the money supply will .

Conventional money demand functions tended to money demand in the middle and late 1970s,and velocity beginning in 1982.

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.

The portfolio theories of money demand state that when income (and therefore,wealth)is higher,the demand for the money asset will and the demand for real money balances will be .