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

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

If the money supply is $20 trillion and velocity is 2, then nominal GDP is ________.

________ quantity theory of money suggests that the demand for money is purely a function of income, and interest rates have no effect on the demand for money.

Irving Fisher took the view that the institutional features of the economy which affect velocity change ________ over time so that velocity will be fairly ________ in the short run.

Explain how financing a persistent deficit by money creation will lead to a sustained inflation.

Financing a debt through the direct-issue of currency is called ________.

Currency and chequable deposits are said to be ________.

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

Because interest rates have substantial fluctuations, the ________ theory of the demand for money indicates that velocity has substantial fluctuations as well.

Explain the speculative motive for holding money in Keynes's liquidity preference theory.

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 Baumol-Tobin analysis suggests that an increase in the brokerage fee for buying and selling bonds will cause the demand for money to ________ and the demand for bonds to ________.

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

The government can ________ by ________.

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?

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

There are ________ factors that affect the demand for money.

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

Explain the precautionary motive for holding money in Keynes's liquidity preference theory.

Fisher's quantity theory of money suggests that the demand for money is purely a function of ________, and ________ no effect on the demand for money.