Deck 11: The Demand for Money and the Price Level

Question 1

Money is different from other assets like capital and bonds in that:

A)money does not pay interest.
B)money can be spent for purchases.
C)capital and bonds are better long term stores of value.
D)all of the above.

Answer 1

all of the above.

Question 2

High powered money is commodity money like gold and silver.

Answer 2

False

Question 3

A monetary aggregate is:

A)high powered money.
B)commodity money.
C)money defined more broadly than currency.
D)total currency in circulation plus depository institutions deposits at the central bank.

Answer 3

money defined more broadly than currency.

Question 4

US M1 money includes:

A)currency, traveler's checks and checkable deposits.
B)checkable deposits, traveler's checks and savings deposits.
C)currency, checkable deposits, savings deposits.
D)currency, time deposits, checkable deposits.

Question 5

US M1 money includes:

A)savings deposits.
B)checkable deposits.
C)time deposits.
D)all of the above.

Question 6

Money is different from other assets like capital and bonds in that:

A)money pays a higher interest rate.
B)money can be spent for purchases.
C)money is a better long term store of value.
D)all of the above.

Question 7

High powered money is:

A)money held by business for investment.
B)total currency in circulation plus depository institutions deposits at the central bank.
C)total currency in circulation.
D)government bonds held by the public and depository institutions.

Question 8

Commodity money is money that has value because:

A)of the intrinsic value of the commodity.
B)it is legal tender.
C)the government says so.
D)all of the above.

Question 9

If a person holds one dollar and does not lose it, then as long as the person holds that dollar they will have:

A)the commodity value of the dollar.
B)one dollar in currency.
C)an interest bearing asset.
D)all of the above.

Question 10

Fiat money is money that has value because of:

A)its intrinsic value.
B)it is a commodity.
C)government decree.
D)all of the above.

Question 11

The neutrality of money means that one time changes in the money supply do not affect real variables.

Question 12

US M1 money includes:

A)currency held by the public.
B)checkable deposits.
C)traveler's checks.
D)all of the above.

Question 13

US M2 money includes:

A)currency, time deposits government bonds.
B)savings deposits, small time deposits, private bonds.
C)checkable deposits, savings deposits, small time deposits.
D)retail money market mutual funds, small time deposits, government bonds.

Question 14

If the interest rate increases, then the real demand for money also increases.

Question 15

When households reduce their average money balances, they

A)purchase more goods.
B)they earn less interest.
C)incur more opportunity costs.
D)incur more transaction costs.

Question 16

US M2 money includes:

A)currency.
B)demand deposits
C)small time deposits.
D)all of the above.

Question 17

If the money supply grows faster than money demand, then the price level rises.

Question 18

If households reduce money balances, then their transactions costs go up.

Question 19

Money is different from other assets like capital and bonds in that:

A)money does not pay interest.
B)money has intrinsic value.
C)money is a better long term store of value.
D)all of the above.

Question 20

Money is different from other assets like capital and bonds in that:

A)money has intrinsic value.
B)money pays a higher rate of interest.
C)capital and bonds are better long term stores of value.
D)all of the above.

Question 21

When the supply of money increases, then

A)the price level rises.
B)the price level falls.
C)money demand increases.
D)money demand decreases.

Question 22

Figure 10.1
In Figure 10.1, if the money supply decreases then:

A)the equilibrium price level rises.
B)the equilibrium price level falls.
C)money demand increases.
D)money demand decreases.

Question 23

Figure 10.1
In Figure 11.1 if the money supply increases faster than money demand then:

A)the price level will rise over time.
B)the price level will fall over time.
C)GDP will rise over time.
D)GDP will fall over time.

Question 24

Among the sources of transactions costs associated with reducing average money balances are:

A)brokerage fees.
B)opportunity costs.
C)foregone interest payments.
D)all of the above.

Question 25

Among the source of transactions costs associated with reducing average money balances are:

A)brokerage fees.
B)the time spent going to the bank.
C)the time spent going to the ATM.
D)all of the above.

Question 26

The demand for money is:

A)negatively related to the price level.
B)negatively related to the interest rate.
C)negatively related to real GDP.
D)all of the above.

Question 27

Economies of scale in cash management means:

A)at a higher income household's hold more money as a proportion of their income.
B)at lower incomes household's hold more money as a proportion of their income
C)the proportion of income held is not affected by household income.
D)at lower income households hold less money as a proportion of their income.

Question 28

Figure 10.1
In Figure 10.1 if the interest rate, i, were to increase, then

A)money demand decreases and the price level increases.
B)money demand increases and the price level decreases.
C)the money supply and the price level would increase.
D)the money supply and the price level would decrease.

Question 29

Figure 10.1
In Figure 10.1 if money demand increases faster than the money supply then:

A)the price level will rise over time.
B)the price level will fall over time.
C)GDP will rise over time.
D)GDP will fall over time.

Question 30

The demand for money is:

A)positively related to the price level.
B)positively related to the interest rate.
C)negatively related to real GDP.
D)all of the above.

Question 31

Figure 10.1
In Figure 11.1, if money demand increases then:

A)the equilibrium price level rises.
B)the equilibrium price level falls.
C)the money supply rises.
D)the money supply falls.

Question 32

Figure 10.1
In Figure 10.1, if money demand decreases then:

A)the equilibrium price level rises.
B)the equilibrium prices level falls.
C)the money supply rises.
D)the money supply falls.

Question 33

Figure 10.1
In Figure 11.1 if real GDP, Y, were to increase, then

A)money demand decreases and the price level increases.
B)money demand increases and the price level decreases.
C)the money supply and the price level would increase.
D)the money supply and the price level would decrease.

Question 34

Figure 10.1
In Figure 11.1 the interaction of the money supply and money demand determines:

A)real GDP.
B)the price level.
C)growth rate of the economy.
D)all of the above.

Question 35

If a person's income doubles we expect their cash holding to:

A)double.
B)more than double.
C)less than double.
D)decline.

Question 36

The demand for money is:

A)positively related to the price level.
B)negatively related to the interest rate.
C)positively related to real GDP.
D)all of the above.

Question 37

Among the source of transactions costs associated with reducing average money balances are:

A)foregone interest payments.
B)the time spent going to the bank or ATM.
C)opportunity costs.
D)all of the above.

Question 38

When the demand of money increases, then

A)the price level rises.
B)the price level falls.
C)the money supply increases.
D)the money supply decreases.

Question 39

The demand for money is:

A)negatively related to the price level.
B)positively related to the interest rate.
C)positively related to real GDP.
D)all of the above.

Question 40

Real money demand does not change when:

A)nominal GDP changes.
B)the interest rate changes.
C)the price level changes.
D)all of the above.

Question 41

Under price level targeting the money supply becomes:

A)neutral.
B)endogenous.
C)exogenous.
D)predetermined.

Question 42

Real money demand is:

A)L(Y, i).
B)equal to the money supply.
C)P • L(Y, i).
D)all of the above.

Question 43

If the money supply doubles, then

A)real GDP doubles.
B)real money demand doubles.
C)the interest rate, i, doubles.
D)none of the above.

Question 44

If policy makers target a specific price level, then:

A)the money supply becomes exogenous in the model.
B)the money supply becomes predetermined in the model.
C)the money supply becomes endogenous in the model.
D)the money supply becomes neutral in the model.

Question 45

What is the money demand function and what is the direction of influence of the variables on money demand?

Question 46

The neutrality of money implies:

A)one time changes in real variables do not affect money demand.
B)one time changes in the money supply do not affect real variables.
C)one time changes in nominal variables do not affect money demand.
D)one time changes in the money supply do not affect nominal variables.

Question 47

Empirically, the price level is:

A)procyclical as we would expect if the monetary authority does not vary the money with the business cycle.
B)procyclical as we would expect if the monetary authority varies the money supply with the business cycle.
C)countercyclical as we would expect if the monetary authority does not vary much the money supply with the business cycle.
D)countercyclical as we would expect if the monetary authority varies the money supply with the business cycle.

Question 48

Money demand and the money supply are brought into equilibrium by:

A)real GDP adjusting.
B)the price level adjusting.
C)the interest rate adjusting.
D)the real wage rate adjusting.

Question 49

Real money demand is:

A)determined by the central bank.
B)money demand after taxes.
C)the purchasing power of money balances.
D)all of the above.

Question 50

If the money supply doubles, then

A)GDP doubles.
B)the price level doubles.
C)the interest rate, i, doubles.
D)none of the above.

Question 51

What does money neutrality mean?

Question 52

What would happen to money demand, the money supply and the price level if there were a positive shock to production?

Question 53

If for one period the money supply increases, then:

A)real GDP increases.
B)the real wage increases.
C)real capital per worker increases.
D)none of the above.

Question 54

Why does economizing on money balances lead to greater transactions cost?

Question 55

Real money demand is:

A)M^d/P.
B)a function of real GDP and the interest rate.
C)the purchasing power of money balances.
D)all of the above.

Question 56

Price level targeting implies that the monetary authority:

A)changes the money supply to match movements in money demand.
B)changes money demand to match movements in the money supply.
C)changes money demand and money supply to match movements in the price level.
D)changes money demand to match movements in the price level.

Question 57

Figure 10.1
In Figure 11.1, if the money supply increases then:

A)the equilibrium price level rises.
B)the equilibrium price level falls.
C)the money supply rises.
D)the money supply falls.

Question 58

During a recession,

A)the interest rate and real GDP fall tending to cause money demand to fall.
B)the interest rate and real GDP rise tending to cause money demand to rise.
C)the interest rate falls tending to cause money demand to rise, but is at least partly offset by real GDP falling tending to cause money demand to fall.
D)the interest rate rising and real GDP falling tend to cause money demand to rise.

Question 59

How do money demand and the money supply interact to determine the price level?

Question 60

Real money demand is:

A)money demand after taxes.
B)a function of real GDP and the interest rate.
C)determined by the central bank.
D)all of the above.