Question 1

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.

Accepted Answer

A) income; interest rates have 
B) interest rates; income has 
C) government spending; interest rates have 
D) expectations; income has 
A) income; interest rates have 
B) interest rates; income has 
C) government spending; interest rates have 
D) expectations; income has

Question 2

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 3

According to Milton Friedman,the demand for money is insensitive to interest rates because

Accepted Answer

A) the demand for money is insensitive to changes in the opportunity cost of holding money. 
B) competition among banks keeps the opportunity cost of holding money relatively constant. 
C) people base their investment decisions on expected profits,not interest rates. 
D) transactions are not subject to scale economies as wealth increases. 
A) the demand for money is insensitive to changes in the opportunity cost of holding money. 
B) competition among banks keeps the opportunity cost of holding money relatively constant. 
C) people base their investment decisions on expected profits,not interest rates. 
D) transactions are not subject to scale economies as wealth increases.

Question 4

According to Milton Friedman,income declines relative to permanent income during a business cycle contraction,causing the demand for money relative to actual income to increase,thereby causing velocity to

Accepted Answer

A) rise. 
B) decline. 
C) remain unchanged,since velocity depends only on interest rates. 
D) decline,provided that interest rates increase when the economy contracts. 
A) rise. 
B) decline. 
C) remain unchanged,since velocity depends only on interest rates. 
D) decline,provided that interest rates increase when the economy contracts.

Question 5

What factors determine the demand for money in the Baumol-Tobin analysis of transactions demand for money? How does a change in each factor affect the quantity of money demanded?

Accepted Answer

The factors are real income,the price le

Question 6

The absence of money illusion means that

Accepted Answer

A) as real income doubles,the demand for money doubles. 
B) as interest rates double,the demand for money doubles. 
C) as the money supply doubles,the demand for money doubles. 
D) as the price level doubles,the demand for money doubles. 
A) as real income doubles,the demand for money doubles. 
B) as interest rates double,the demand for money doubles. 
C) as the money supply doubles,the demand for money doubles. 
D) as the price level doubles,the demand for money doubles.

Question 7

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 8

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 9

Keynes hypothesized that the speculative 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

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

Accepted Answer

A) negatively; interest rates 
B) positively; interest rates 
C) negatively; income 
D) negatively; wealth 
A) negatively; interest rates 
B) positively; interest rates 
C) negatively; income 
D) negatively; wealth

Question 11

If there are economies of scale in the transactions demand for money,as income increases,money demand

Accepted Answer

A) increases proportionately. 
B) increases less than proportionately. 
C) increases more than proportionately. 
D) does not change. 
A) increases proportionately. 
B) increases less than proportionately. 
C) increases more than proportionately. 
D) does not change.

Question 12

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.

Question 13

If the money supply is $500 and nominal income is $3,000,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 14

Describe what the liquidity trap is.Explain how it can be problematic for monetary policymakers.

Accepted Answer

The liquidity trap describes the situati

Question 15

The empirical evidence regarding the velocity of money indicates that velocity tends to be ________; that is,velocity ________ when economic activity contracts.

Accepted Answer

A) procyclical; declines 
B) countercyclical; declines 
C) countercyclical; increases 
D) procyclical; increases 
A) procyclical; declines 
B) countercyclical; declines 
C) countercyclical; increases 
D) procyclical; increases

Question 16

In the liquidity trap,monetary policy ________.

Accepted Answer

A) has a large impact on interest rates 
B) has a small impact on interest rates 
C) has no impact on interest rates 
D) has a proportionate impact on interest rates 
A) has a large impact on interest rates 
B) has a small impact on interest rates 
C) has no impact on interest rates 
D) has a proportionate impact on interest rates

Question 17

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 18

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

Question 19

A central question in monetary theory is whether or to what extent the quantity of money demanded is affected by changes in ________.

Accepted Answer

A) the price level 
B) inflation 
C) income 
D) interest rates 
A) the price level 
B) inflation 
C) income 
D) interest rates

Question 20

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

Accepted Answer

A) rises; increases 
B) rises; decreases 
C) falls; increases 
D) falls; decreases 
A) rises; increases 
B) rises; decreases 
C) falls; increases 
D) falls; decreases

Exam 19: The Demand for Money

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.

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

According to Milton Friedman,the demand for money is insensitive to interest rates because

According to Milton Friedman,income declines relative to permanent income during a business cycle contraction,causing the demand for money relative to actual income to increase,thereby causing velocity to

What factors determine the demand for money in the Baumol-Tobin analysis of transactions demand for money? How does a change in each factor affect the quantity of money demanded?

The absence of money illusion means that

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

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

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

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

If there are economies of scale in the transactions demand for money,as income increases,money demand

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

If the money supply is $500 and nominal income is $3,000,the velocity of money is

Describe what the liquidity trap is.Explain how it can be problematic for monetary policymakers.

The empirical evidence regarding the velocity of money indicates that velocity tends to be ________; that is,velocity ________ when economic activity contracts.

In the liquidity trap,monetary policy ________.

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.

A central question in monetary theory is whether or to what extent the quantity of money demanded is affected by changes in ________.

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

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

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.

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

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

The empirical evidence regarding the velocity of money indicates that velocity tends to be ; that is,velocity when economic activity contracts.

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