Question 1

If nominal GDP is $10 trillion,and the money supply is $2 trillion,velocity is

Accepted Answer

A) 0.2. 
B) 5. 
C) 10. 
D) 20. 
A) 0.2. 
B) 5. 
C) 10. 
D) 20.

Question 2

In a liquidity trap,monetary policy has ________ effect on aggregate spending because a change in the money supply has ________ effect on interest rates.

Accepted Answer

A) no; no 
B) no; a large 
C) no; a small 
D) a large; a large 
A) no; no 
B) no; a large 
C) no; a small 
D) a large; a large

Question 3

The finance of government spending through a Treasury sale of bonds which are then purchased by the Fed

Accepted Answer

A) causes both reserves and the monetary base to rise. 
B) causes both reserves and the monetary base to decline. 
C) causes reserves to rise,but the monetary base to decline. 
D) has no net effect on the monetary base. 
A) causes both reserves and the monetary base to rise. 
B) causes both reserves and the monetary base to decline. 
C) causes reserves to rise,but the monetary base to decline. 
D) has no net effect on the monetary base.

Question 4

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 5

The velocity of money is defined as

Accepted Answer

A) real GDP divided by the money supply. 
B) nominal GDP divided by the money supply. 
C) real GDP times the money supply. 
D) nominal GDP times the money supply. 
A) real GDP divided by the money supply. 
B) nominal GDP divided by the money supply. 
C) real GDP times the money supply. 
D) nominal GDP times the money supply.

Question 6

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 7

Comparing Tobin's model of the speculative demand for money with Keynesian speculative demand

Accepted Answer

A) both models imply that individuals hold only money or only bonds. 
B) the Keynesian model implies individuals diversify their asset holdings,while the Tobin model predicts that individuals hold only money or only bonds. 
C) the Tobin model implies individuals diversify their asset holdings,while the Keynesian model predicts that individuals hold only money or only bonds. 
D) both models imply that individuals diversify their asset holdings. 
A) both models imply that individuals hold only money or only bonds. 
B) the Keynesian model implies individuals diversify their asset holdings,while the Tobin model predicts that individuals hold only money or only bonds. 
C) the Tobin model implies individuals diversify their asset holdings,while the Keynesian model predicts that individuals hold only money or only bonds. 
D) both models imply that individuals diversify their asset holdings.

Question 8

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 9

If the deficit is financed by selling bonds to the ________,the money supply will ________,causing aggregate demand to ________.

Accepted Answer

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

Question 10

Because the quantity theory of money tells us how much money is held for a given amount of aggregate income,it is also a theory of

Accepted Answer

A) interest-rate determination. 
B) the demand for money. 
C) exchange-rate determination. 
D) the demand for assets. 
A) interest-rate determination. 
B) the demand for money. 
C) exchange-rate determination. 
D) the demand for assets.

Question 11

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 12

Empirical evidence shows that the quantity theory of money is a good theory of inflation

Accepted Answer

A) in the long run,but not in the short run. 
B) in the short run,but not in the longrun. 
C) in both the long run and the short run. 
D) not in either the long run nor the short run. 
A) in the long run,but not in the short run. 
B) in the short run,but not in the longrun. 
C) in both the long run and the short run. 
D) not in either the long run nor the short run.

Question 13

The equation of exchange is

Accepted Answer

A) M × P = V × Y. 
B) M + V = P + Y. 
C) M + Y = V + P. 
D) M × V = P × Y. 
A) M × P = V × Y. 
B) M + V = P + Y. 
C) M + Y = V + P. 
D) M × V = P × Y.

Question 14

Starting in 1974,the conventional M1 money demand function began to

Accepted Answer

A) severely underpredict the demand for money. 
B) severely overpredict the demand for money. 
C) predict more precisely the demand for money. 
D) do none of the above. 
A) severely underpredict the demand for money. 
B) severely overpredict the demand for money. 
C) predict more precisely the demand for money. 
D) do none of the above.

Question 15

The Baumol-Tobin analysis suggests that

Accepted Answer

A) velocity is relatively constant. 
B) the transactions component of the demand for money is negatively related to the level of interest rates. 
C) the speculative motive is nonexistent. 
D) velocity is unrelated to the transactions motive. 
A) velocity is relatively constant. 
B) the transactions component of the demand for money is negatively related to the level of interest rates. 
C) the speculative motive is nonexistent. 
D) velocity is unrelated to the transactions motive.

Question 16

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 17

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 18

In the early 1990s,M2 growth underwent a dramatic ________,which some researchers believe ________ be explained by traditional money demand functions.

Accepted Answer

A) surge; cannot 
B) surge; can 
C) slowdown; cannot 
D) slowdown; can 
A) surge; cannot 
B) surge; can 
C) slowdown; cannot 
D) slowdown; can

Question 19

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

Question 20

In Irving Fisher's quantity theory of money,velocity was determined by

Accepted Answer

A) interest rates. 
B) real GDP. 
C) the institutions in an economy that affect individuals' transactions. 
D) the price level. 
A) interest rates. 
B) real GDP. 
C) the institutions in an economy that affect individuals' transactions. 
D) the price level.

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

If nominal GDP is $10 trillion,and the money supply is $2 trillion,velocity is

In a liquidity trap,monetary policy has ________ effect on aggregate spending because a change in the money supply has ________ effect on interest rates.

The finance of government spending through a Treasury sale of bonds which are then purchased by the Fed

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

The velocity of money is defined as

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

Comparing Tobin's model of the speculative demand for money with Keynesian speculative demand

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

If the deficit is financed by selling bonds to the ________,the money supply will ________,causing aggregate demand to ________.

Because the quantity theory of money tells us how much money is held for a given amount of aggregate income,it is also a theory of

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

Empirical evidence shows that the quantity theory of money is a good theory of inflation

The equation of exchange is

Starting in 1974,the conventional M1 money demand function began to

The Baumol-Tobin analysis suggests that

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 ________.

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

In the early 1990s,M2 growth underwent a dramatic ________,which some researchers believe ________ be explained by traditional money demand functions.

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

In Irving Fisher's quantity theory of money,velocity was determined by

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

In a liquidity trap,monetary policy has effect on aggregate spending because a change in the money supply has effect on interest rates.

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

If the deficit is financed by selling bonds to the ,the money supply will ,causing aggregate demand to .

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

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 early 1990s,M2 growth underwent a dramatic ,which some researchers believe be explained by traditional money demand functions.

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