Question 1

Deposits in passbook savings accounts at an S&L are

Accepted Answer

A) not counted as money since they are not held at commercial banks 
B) included in M1 but not in M2 
C) included in M1 and in M2 
D) not included in M1 but included in M2 
E) not included in M1 or M2, since they are not demand deposits 
A) not counted as money since they are not held at commercial banks 
B) included in M1 but not in M2 
C) included in M1 and in M2 
D) not included in M1 but included in M2 
E) not included in M1 or M2, since they are not demand deposits

Question 2

The Baumol-Tobin square-root formula predicts that the amount of money balances held should

Accepted Answer

A) move in the opposite direction from the interest rate 
B) move in the same direction as the interest rate 
C) increase more than proportionally to increases in the cost of money transactions 
D) increase less than proportionally to increases in the level of income 
E) both A and D 
A) move in the opposite direction from the interest rate 
B) move in the same direction as the interest rate 
C) increase more than proportionally to increases in the cost of money transactions 
D) increase less than proportionally to increases in the level of income 
E) both A and D

Question 3

Money market deposit accounts (MMDAs)

Accepted Answer

A) are included in M1 since they have check writing privileges 
B) are included in M1 since they are bank deposits and federally insured 
C) are not included in M1 since they put a limit on the number of checks that can be written 
D) are not included in M1 since they are not insured by the FDIC 
E) are not included in M1 since they are held at brokerage houses 
A) are included in M1 since they have check writing privileges 
B) are included in M1 since they are bank deposits and federally insured 
C) are not included in M1 since they put a limit on the number of checks that can be written 
D) are not included in M1 since they are not insured by the FDIC 
E) are not included in M1 since they are held at brokerage houses

Question 4

Assume that interest rates drop and GDP increases as a result of expansionary monetary policy.What should happen to the demand for real money balances?

Accepted Answer

A) it should increase 
B) it should decrease since interest rates will decrease 
C) it will remain unaffected since income will go up but the interest rate will go down 
D) it will remain unaffected since the income velocity of money does not change 
E) we can't tell for sure since we do not know what will happen to the income velocity of money 
A) it should increase 
B) it should decrease since interest rates will decrease 
C) it will remain unaffected since income will go up but the interest rate will go down 
D) it will remain unaffected since the income velocity of money does not change 
E) we can't tell for sure since we do not know what will happen to the income velocity of money

Question 5

From the Baumol-Tobin transaction demand model, we can derive that the

Accepted Answer

A) the interest elasticity of money demand is -1 
B) income elasticity of money demand is +1 
C) the interest elasticity of money demand is -1/2 
D) income elasticity of money demand is +1/2 
E) both C and D 
A) the interest elasticity of money demand is -1 
B) income elasticity of money demand is +1 
C) the interest elasticity of money demand is -1/2 
D) income elasticity of money demand is +1/2 
E) both C and D

Question 6

If interest rates are currently very high and you expect them to go down soon, you will most likely

Accepted Answer

A)   	sell your bonds now, while their yield is high and they are more marketable 
B)   	want to hold more money now to undertake more transactions since you expect economic activity to increase 
C)   	hold more money now, so you can buy more bonds later as soon as interest rates have dropped 
D)   	hold on to your bonds for now but expect to sell some of them later once interest rates have declined 
E) 	switch from holding long-term bonds to holding short-term bonds 
A)   	sell your bonds now, while their yield is high and they are more marketable 
B)   	want to hold more money now to undertake more transactions since you expect economic activity to increase 
C)   	hold more money now, so you can buy more bonds later as soon as interest rates have dropped 
D)   	hold on to your bonds for now but expect to sell some of them later once interest rates have declined 
E) 	switch from holding long-term bonds to holding short-term bonds

Question 7

An asset (other than money) is considered to be more liquid if

Accepted Answer

A) it has a longer maturity 
B) it is issued by a major company rather than the government 
C) it earns a high rate of interest or dividend 
D) it has more than one use 
E) it can be quickly and cheaply transferred into money 
A) it has a longer maturity 
B) it is issued by a major company rather than the government 
C) it earns a high rate of interest or dividend 
D) it has more than one use 
E) it can be quickly and cheaply transferred into money

Question 8

Assume the economy goes into a recession.We should expect that

Accepted Answer

A) the income velocity of money will decrease 
B) the income velocity of money will increase 
C) the income velocity of money will remain unaffected 
D) money demand and the income velocity of money will both increase 
E) money demand and the income velocity of money will both decrease 
A) the income velocity of money will decrease 
B) the income velocity of money will increase 
C) the income velocity of money will remain unaffected 
D) money demand and the income velocity of money will both increase 
E) money demand and the income velocity of money will both decrease

Question 9

According to the Baumol-Tobin transaction demand model, the amount of money balances held should increase as

Accepted Answer

A) the interest rate increases 
B) the level of income decreases 
C) the cost of money transactions increases 
D) the cost of illiquidity increases 
E) none of the above 
A) the interest rate increases 
B) the level of income decreases 
C) the cost of money transactions increases 
D) the cost of illiquidity increases 
E) none of the above

Question 10

The liquidity of an asset is determined by

Accepted Answer

A) the central bank 
B) the cost of keeping it in a safe place 
C) its potential value to the buyer 
D) the cost, convenience, and speed with which it can be converted into money 
E) how frequently it turns over in trade during the year 
A) the central bank 
B) the cost of keeping it in a safe place 
C) its potential value to the buyer 
D) the cost, convenience, and speed with which it can be converted into money 
E) how frequently it turns over in trade during the year

Deposits in passbook savings accounts at an S&L are

The Baumol-Tobin square-root formula predicts that the amount of money balances held should

Money market deposit accounts (MMDAs)

Assume that interest rates drop and GDP increases as a result of expansionary monetary policy.What should happen to the demand for real money balances?

From the Baumol-Tobin transaction demand model, we can derive that the

If interest rates are currently very high and you expect them to go down soon, you will most likely

An asset (other than money) is considered to be more liquid if

Assume the economy goes into a recession.We should expect that

According to the Baumol-Tobin transaction demand model, the amount of money balances held should increase as

The liquidity of an asset is determined by

Introduction

National income accounting

Growth and accumulation

Growth and policy

Aggregate supply and demand

Aggregate supply and the phillips curve

Unemployment

Inflation

Policy preview

Income and spending

Money, interest, and income

Monetary and fiscal policy

International linkages

Consumption and saving

Investment spending

The fed, money, and credit

Policy

Financial markets and asset prices

The national debt

Recession and depression

Inflation and hyperinflation

International adjustment and interdependence

Advanced topics

Filters

Exam 16: The demand for money

Deposits in passbook savings accounts at an S&L are

The Baumol-Tobin square-root formula predicts that the amount of money balances held should

Money market deposit accounts (MMDAs)

Assume that interest rates drop and GDP increases as a result of expansionary monetary policy.What should happen to the demand for real money balances?

From the Baumol-Tobin transaction demand model, we can derive that the

If interest rates are currently very high and you expect them to go down soon, you will most likely

An asset (other than money) is considered to be more liquid if

Assume the economy goes into a recession.We should expect that

According to the Baumol-Tobin transaction demand model, the amount of money balances held should increase as

The liquidity of an asset is determined by

Introduction

National income accounting

Growth and accumulation

Growth and policy

Aggregate supply and demand

Aggregate supply and the phillips curve

Unemployment

Inflation

Policy preview

Income and spending

Money, interest, and income

Monetary and fiscal policy

International linkages

Consumption and saving

Investment spending

The fed, money, and credit

Policy

Financial markets and asset prices

The national debt

Recession and depression

Inflation and hyperinflation

International adjustment and interdependence

Advanced topics

Filters