Question 1

Only when budget deficits are financed by money creation does the increased government spending lead to ________ in the ________.

Accepted Answer

A) a decrease; monetary base 
B) an increase; monetary base 
C) a decrease; money multiplier 
D) an increase; money multiplier 
A) a decrease; monetary base 
B) an increase; monetary base 
C) a decrease; money multiplier 
D) an increase; money multiplier

Question 2

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

Question 3

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

Accepted Answer

A) increase; increase 
B) increase; decrease 
C) decrease; decrease 
D) decrease; increase 
A) increase; increase 
B) increase; decrease 
C) decrease; decrease 
D) decrease; increase

Question 4

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 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

The Keynesian demand for real balances can be expressed as

Accepted Answer

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

Question 7

Tobin's model of the speculative demand for money improves on Keynes's analysis by showing that

Accepted Answer

A) the speculative demand for money is interest insensitive. 
B) the transactions demand for money is interest insensitive. 
C) people will hold a diversified portfolio. 
D) people will hold money or bonds but not both. 
A) the speculative demand for money is interest insensitive. 
B) the transactions demand for money is interest insensitive. 
C) people will hold a diversified portfolio. 
D) people will hold money or bonds but not both.

Question 8

The classical economists believed that if the quantity of money doubled,

Accepted Answer

A) output would double. 
B) prices would fall. 
C) prices would double. 
D) prices would remain constant. 
A) output would double. 
B) prices would fall. 
C) prices would double. 
D) prices would remain constant.

Question 9

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 10

If the deficit is financed by selling bonds to the ________,the money supply will ________,increasing aggregate demand,and leading to a rise in the price level.

Accepted Answer

A) public; rise 
B) public; fall 
C) central bank; rise 
D) central bank; fall 
A) public; rise 
B) public; fall 
C) central bank; rise 
D) central bank; fall

Question 11

Starting in 1974,the conventional M1 money demand function began to severely ________ the demand for money.Stephen Goldfeld labeled this phenomenon "the case of the missing ________."

Accepted Answer

A) underpredict; velocity 
B) overpredict; velocity 
C) underpredict; money 
D) overpredict; money 
A) underpredict; velocity 
B) overpredict; velocity 
C) underpredict; money 
D) overpredict; money

Question 12

The theory of portfolio choice indicates that factors affecting the demand for money include

Accepted Answer

A) income. 
B) nominal interest rate. 
C) liquidity of other assets. 
D) all the above. 
A) income. 
B) nominal interest rate. 
C) liquidity of other assets. 
D) all the above.

Question 13

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 14

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

Accepted Answer

A) is purely a function of income,and interest rates have no effect on the demand for money. 
B) is purely a function of interest rates,and income has no effect on the demand for money. 
C) is a function of both income and interest rates. 
D) is a function of both government spending and income. 
A) is purely a function of income,and interest rates have no effect on the demand for money. 
B) is purely a function of interest rates,and income has no effect on the demand for money. 
C) is a function of both income and interest rates. 
D) is a function of both government spending and income.

Question 15

Researchers at the Federal Reserve found that M2 money demand functions performed ________ in the 1980s,with M2 velocity moving ________ with the opportunity cost of holding M2.

Accepted Answer

A) poorly; erratically 
B) poorly; closely 
C) well; erratically 
D) well; closely 
A) poorly; erratically 
B) poorly; closely 
C) well; erratically 
D) well; closely

Question 16

The reason that economists are so interested in the stability of velocity is because if the demand for money is not stable,then steady growth of the money supply

Accepted Answer

A) is going to promote price stability at the expense of low unemployment. 
B) is going to promote low unemployment at the expense of price stability. 
C) is an ineffective way to conduct monetary policy. 
D) can still be used to conduct monetary policy if the goal is price stability. 
A) is going to promote price stability at the expense of low unemployment. 
B) is going to promote low unemployment at the expense of price stability. 
C) is an ineffective way to conduct monetary policy. 
D) can still be used to conduct monetary policy if the goal is price stability.

Question 17

If the government finances its spending by issuing debt to the public,the monetary base will ________ and the money supply will ________.

Accepted Answer

A) increase; increase 
B) increase; decrease 
C) decrease; increase 
D) not change; not change 
A) increase; increase 
B) increase; decrease 
C) decrease; increase 
D) not change; not change

Question 18

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 19

Financing government spending by selling bonds to the public,which pays for the bonds with currency,

Accepted Answer

A) leads to a permanent decline in the monetary base. 
B) leads to a permanent increase in the monetary base. 
C) leads to a temporary increase in the monetary base. 
D) has no net effect on the monetary base. 
A) leads to a permanent decline in the monetary base. 
B) leads to a permanent increase in the monetary base. 
C) leads to a temporary increase in the monetary base. 
D) has no net effect on the monetary base.

Question 20

The quantity theory of inflation indicates that if the aggregate output is growing at 3% per year and the growth rate of money is 5%,then inflation is

Accepted Answer

A) 2%. 
B) 8%. 
C) -2%. 
D) 1.6%. 
A) 2%. 
B) 8%. 
C) -2%. 
D) 1.6%.

Exam 19: Quantity Theory,inflation and the Demand for Money

Only when budget deficits are financed by money creation does the increased government spending lead to ________ in the ________.

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

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

Velocity is defined as

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

The Keynesian demand for real balances can be expressed as

Tobin's model of the speculative demand for money improves on Keynes's analysis by showing that

The classical economists believed that if the quantity of money doubled,

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

If the deficit is financed by selling bonds to the ________,the money supply will ________,increasing aggregate demand,and leading to a rise in the price level.

Starting in 1974,the conventional M1 money demand function began to severely ________ the demand for money.Stephen Goldfeld labeled this phenomenon "the case of the missing ________."

The theory of portfolio choice indicates that factors affecting the demand for money include

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 ________.

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

Researchers at the Federal Reserve found that M2 money demand functions performed ________ in the 1980s,with M2 velocity moving ________ with the opportunity cost of holding M2.

The reason that economists are so interested in the stability of velocity is because if the demand for money is not stable,then steady growth of the money supply

If the government finances its spending by issuing debt to the public,the monetary base will ________ and the money supply will ________.

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

Financing government spending by selling bonds to the public,which pays for the bonds with currency,

The quantity theory of inflation indicates that if the aggregate output is growing at 3% per year and the growth rate of money is 5%,then inflation is

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

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 of Monetary Policy

The Conduct of Monetary Policy: Strategy and Tactics

The Foreign Exchange Market

The International Financial System

The Is Curve

The Monetary Policy and Aggregate Demand Curves

Aggregate Demand and Supply Analysis

Monetary Policy Theory

The Role of Expectations in Monetary Policy

Transmission Mechanisms of Monetary Policy

The ISLM Model

Filters

Only when budget deficits are financed by money creation does the increased government spending lead to in the .

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

The Baumol-Tobin analysis suggests that a decrease in the brokerage fee for buying and selling bonds will cause the demand for money to and the demand for bonds to .

If the deficit is financed by selling bonds to the ,the money supply will ,increasing aggregate demand,and leading to a rise in the price level.

Starting in 1974,the conventional M1 money demand function began to severely the demand for money.Stephen Goldfeld labeled this phenomenon "the case of the missing ."

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 .

Researchers at the Federal Reserve found that M2 money demand functions performed in the 1980s,with M2 velocity moving with the opportunity cost of holding M2.

If the government finances its spending by issuing debt to the public,the monetary base will and the money supply will .