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

This method of financing government spending is frequently called printing money because high-powered money (the monetary base)is created in the process.

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

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

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.

Keynes's model of the demand for money suggests that velocity is ________ related to ________.

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

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

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

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

Evidence suggests that a liquidity trap is possible when

The speculative demand for money may not exist because