Question 1

In the late 1990s,M2 velocity ________,suggesting a ________ normal relationship between M2 and macroeconomic variables.

Accepted Answer

A) stabilized; less 
B) stabilized; more 
C) slowed; less 
D) slowed; more 
A) stabilized; less 
B) stabilized; more 
C) slowed; less 
D) slowed; more B

Question 2

In Friedman's modern quantity theory,velocity is procyclical because

Accepted Answer

A) money demand depends on permanent income,which is more stable than actual income. 
B) money demand depends on actual income,which is more stable than permanent income. 
C) velocity depends upon interest rates,which are stable over the business cycle. 
D) velocity depends upon interest rates,which move procyclically. 
A) money demand depends on permanent income,which is more stable than actual income. 
B) money demand depends on actual income,which is more stable than permanent income. 
C) velocity depends upon interest rates,which are stable over the business cycle. 
D) velocity depends upon interest rates,which move procyclically. A

Question 3

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

Accepted Answer

A) positively; interest rates 
B) negatively; interest rates 
C) positively; bond values 
D) positively; stock prices 
A) positively; interest rates 
B) negatively; interest rates 
C) positively; bond values 
D) positively; stock prices A

Question 4

Because Treasury bills pay a higher return than money and have no risk

Accepted Answer

A) the transactions demand for money may be zero. 
B) the precautionary demand for money may be zero. 
C) the speculative demand for money may be zero. 
D) all three of the above motives for holding money will be zero. 
A) the transactions demand for money may be zero. 
B) the precautionary demand for money may be zero. 
C) the speculative demand for money may be zero. 
D) all three of the above motives for holding money will be zero.

Question 5

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 6

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

Accepted Answer

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

Question 7

Keynes's theory of the demand for money is consistent with

Accepted Answer

A) countercyclical movements in velocity. 
B) a constant velocity. 
C) procyclical movements in velocity. 
D) a relatively stable velocity. 
A) countercyclical movements in velocity. 
B) a constant velocity. 
C) procyclical movements in velocity. 
D) a relatively stable velocity.

Question 8

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 9

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 10

In the Baumol-Tobin analysis of transactions demand for money,either an increase in ________ or a decrease in ________ increases money demand.

Accepted Answer

A) income; interest rate 
B) interest rates; brokerage fees 
C) brokerage fees; income 
D) interest rate; income 
A) income; interest rate 
B) interest rates; brokerage fees 
C) brokerage fees; income 
D) interest rate; income

Question 11

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 12

In the liquidity trap,the money demand curve ________.

Accepted Answer

A) is horizontal 
B) is vertical 
C) is negatively sloped 
D) is positively sloped 
A) is horizontal 
B) is vertical 
C) is negatively sloped 
D) is positively sloped

Question 13

According to Keynes's theory of liquidity preference,velocity increases when

Accepted Answer

A) income increases. 
B) wealth increases. 
C) brokerage commissions increase. 
D) interest rates increase. 
A) income increases. 
B) wealth increases. 
C) brokerage commissions increase. 
D) interest rates increase.

Question 14

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

Accepted Answer

A) classical 
B) Cambridge 
C) liquidity preference 
D) Pigouvian 
A) classical 
B) Cambridge 
C) liquidity preference 
D) Pigouvian

Question 15

The speculative demand for money may not exist because

Accepted Answer

A) banks now pay interest on some types of checkable deposits. 
B) there are alternative riskless assets paying higher returns than the return on money. 
C) the transactions demand can be shown to depend on interest rates. 
D) government regulations have eliminated risk in the financial markets. 
A) banks now pay interest on some types of checkable deposits. 
B) there are alternative riskless assets paying higher returns than the return on money. 
C) the transactions demand can be shown to depend on interest rates. 
D) government regulations have eliminated risk in the financial markets.

Question 16

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 17

What factors determine money demand in Friedman's modern quantity theory? How does each affect money demand? What determines velocity in Friedman's theory? What effect do interest rates have on velocity?

Accepted Answer

In Friedman's theory,increases in perman

Question 18

Since the elimination of interest rate ceilings on deposits,the implicit interest rate on money more closely approaches bond interest rates.This suggests that changes in interest rates will

Accepted Answer

A) have a larger impact on money demand. 
B) have a smaller impact on money demand. 
C) no longer affect the speculative demand for money. 
D) no longer affect the transactions demand for money. 
A) have a larger impact on money demand. 
B) have a smaller impact on money demand. 
C) no longer affect the speculative demand for money. 
D) no longer affect the transactions demand for money.

Question 19

In Friedman's modern quantity theory,the implied formula for velocity is

Accepted Answer

A) V = Md/f(i). 
B) V = Y/f(   ). 
C) V = f(   )/Y. 
D) V = Y/f(i). 
A) V = Md/f(i). 
B) V = Y/f(   ). 
C) V = f(   )/Y. 
D) V = Y/f(i).

Question 20

Keynes hypothesized that the precautionary 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.

Exam 19: The Demand for Money

In the late 1990s,M2 velocity ________,suggesting a ________ normal relationship between M2 and macroeconomic variables.

In Friedman's modern quantity theory,velocity is procyclical because

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

Because Treasury bills pay a higher return than money and have no risk

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

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

Keynes's theory of the demand for money is consistent with

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

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 ________.

In the Baumol-Tobin analysis of transactions demand for money,either an increase in ________ or a decrease in ________ increases money demand.

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 ________.

In the liquidity trap,the money demand curve ________.

According to Keynes's theory of liquidity preference,velocity increases when

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

The speculative demand for money may not exist because

Velocity is defined as

What factors determine money demand in Friedman's modern quantity theory? How does each affect money demand? What determines velocity in Friedman's theory? What effect do interest rates have on velocity?

Since the elimination of interest rate ceilings on deposits,the implicit interest rate on money more closely approaches bond interest rates.This suggests that changes in interest rates will

In Friedman's modern quantity theory,the implied formula for velocity is

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

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 and the Subprime Meltdown

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 for Monetary Policy

The Conduct of Monetary Policy: Strategy and Tactics

The Foreign Exchange Market

The International Financial System

The Islm Model

Monetary and Fiscal Policy in the ISLM Model

Aggregate Demand and Supply Analysis

Transmission Mechanisms of Monetary Policy: The Evidence

Money and Inflation

Rational Expectations: Implications for Policy

Filters

In the late 1990s,M2 velocity ,suggesting a normal relationship between M2 and macroeconomic variables.

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

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 .

In the Baumol-Tobin analysis of transactions demand for money,either an increase in or a decrease in increases money demand.

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 .