Question 1

Baumol and Tobin developed monetary models that showed ________.

Accepted Answer

A) money balances held for transaction purposes are sensitive to the level of interest rates 
B) money balances held for speculative purposes are sensitive to the level of interest rates 
C) money balances held for transaction purposes are not sensitive to the level of interest rates 
D) money balances held for wealth purposes are sensitive to the level of interest rates 
A) money balances held for transaction purposes are sensitive to the level of interest rates 
B) money balances held for speculative purposes are sensitive to the level of interest rates 
C) money balances held for transaction purposes are not sensitive to the level of interest rates 
D) money balances held for wealth purposes are sensitive to the level of interest rates A

Question 2

In the Baumol-Tobin model, as interest rates increase ________.

Accepted Answer

A) the amount of cash held for transaction purposes falls and velocity and interest rates are positively correlated 
B) the amount of cash held for transaction purposes falls and velocity and interest rates are negatively correlated 
C) the amount of cash held for transaction purposes rises and velocity and interest rates are positively correlated 
D) the amount of cash held for transaction purposes rises and velocity and interest rates are negatively correlated 
A) the amount of cash held for transaction purposes falls and velocity and interest rates are positively correlated 
B) the amount of cash held for transaction purposes falls and velocity and interest rates are negatively correlated 
C) the amount of cash held for transaction purposes rises and velocity and interest rates are positively correlated 
D) the amount of cash held for transaction purposes rises and velocity and interest rates are negatively correlated A

Question 3

Explain the conclusion that the quantity theory of money is a good theory of inflation in the long run, but not in the short run. How does is this conclusion related to flexible wages and prices.

Accepted Answer

Inflation is always and everywhere a monetary phenomenon. is accurate in the long run but not supported empirically in the short run. The classical assumption that wages and prices are completely flexible may not be a good assumption for short-run fluctuations in inflation and aggregate output.

Question 4

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 5

Describe the factors that affect the demand for money.

Accepted Answer

The demand for money using Keynesian and

Question 6

Tobin's model of the speculative demand for money shows that people can reduce their ________ by ________ their asset holdings.

Accepted Answer

A) wealth; diversifying 
B) risk; specializing 
C) return; diversifying 
D) risk; diversifying 
A) wealth; diversifying 
B) risk; specializing 
C) return; diversifying 
D) risk; diversifying

Question 7

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 8

The Keynesian demand for real balances can be expressed as ________.

Accepted Answer

A) Mᵈ = f(i,Y) 
B) Mᵈ/P = f(i) 
C) Mᵈ/P = f(Y) 
D) Mᵈ/P = f(i,Y) 
A) Mᵈ = f(i,Y) 
B) Mᵈ/P = f(i) 
C) Mᵈ/P = f(Y) 
D) Mᵈ/P = f(i,Y)

Question 9

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 10

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 11

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 12

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 13

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 14

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 15

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 16

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 17

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

Accepted Answer

A) constant 
B) positively related to interest rates 
C) negatively related to interest rates 
D) positively related to bond values 
A) constant 
B) positively related to interest rates 
C) negatively related to interest rates 
D) positively related to bond values

Question 18

The classical economists' contention that prices double when the money supply doubles is predicated on the belief that in the short run velocity is ________ and real GDP is ________.

Accepted Answer

A) constant; constant 
B) constant; variable 
C) variable; variable 
D) variable; constant 
A) constant; constant 
B) constant; variable 
C) variable; variable 
D) variable; constant

Question 19

Which events created the perfect storm for the Canadian economy in 2007-2008?

Accepted Answer

A) An oil price shock and the global financial crisis. 
B) Housing prices had doubled in most major metropolitan areas. 
C) Prime mortgage interest rates were rising. 
D) All of the above. 
A) An oil price shock and the global financial crisis. 
B) Housing prices had doubled in most major metropolitan areas. 
C) Prime mortgage interest rates were rising. 
D) All of the above.

Question 20

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

Exam 20: Quantity Theory, Inflation, and the Demand for Money

Baumol and Tobin developed monetary models that showed ________.

In the Baumol-Tobin model, as interest rates increase ________.

Explain the conclusion that the quantity theory of money is a good theory of inflation in the long run, but not in the short run. How does is this conclusion related to flexible wages and prices.

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 ________.

Describe the factors that affect the demand for money.

Tobin's model of the speculative demand for money shows that people can reduce their ________ by ________ their asset holdings.

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

The Keynesian demand for real balances can be expressed as ________.

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

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 ________.

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 ________.

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

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 demand for money as a cushion against unexpected contingencies is called 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.

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

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

The classical economists' contention that prices double when the money supply doubles is predicated on the belief that in the short run velocity is ________ and real GDP is ________.

Which events created the perfect storm for the Canadian economy in 2007-2008?

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 ________.

Why Study Money, Banking, and Financial Markets

An Overview of the Financial System

What Is Money

Understanding Interest Rates

The Behaviour 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

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Banking and the Management of Financial Institutions

Risk Management With Financial Derivatives

Central Banks and the Bank of Canada

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

Financial Crises in Emerging Markets

The ISLM Model

Non-Bank Finance

Filters

Tobin's model of the speculative demand for money shows that people can reduce their by their asset holdings.

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 .

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 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 classical economists' contention that prices double when the money supply doubles is predicated on the belief that in the short run velocity is and real GDP is .