Question 1

A plot of Canadian inflation against annual money growth rate between 1971 and 2017 shows ________.

Accepted Answer

A)  money supply lags by two years 
B)  money supply lags by one year 
C)  that the two are contemporaneously correlated 
D)  are uncorrelated 
A)  money supply lags by two years 
B)  money supply lags by one year 
C)  that the two are contemporaneously correlated 
D)  are uncorrelated

Question 2

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 3

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 4

If the demand for money is unstable then ________.

Accepted Answer

A)  velocity is unpredictable 
B)  quantity of money is not linked to aggregated spending 
C)  aggregate spending rises 
D)  A and B only 
A)  velocity is unpredictable 
B)  quantity of money is not linked to aggregated spending 
C)  aggregate spending rises 
D)  A and B only

Question 5

Explain the conclusion that the quantity theory of money is a good theory of inflation in the long run, but not in the short run. How does is this conclusion related to flexible wages and prices.

Accepted Answer

Inflation is always and everywhere a mon

Question 6

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 7

According to Keynes's theory of liquidity preference, velocity increases when ________.

Accepted Answer

A)  income increases 
B)  wealth increases 
C)  brokerage commissions increase 
D)  interest rates increase 
A)  income increases 
B)  wealth increases 
C)  brokerage commissions increase 
D)  interest rates increase

Question 8

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 9

Financing a debt through the direct-issue of currency is called ________.

Accepted Answer

A)  printing money 
B)  monetizing the debt 
C)  open market purchases 
D)  open market sales 
A)  printing money 
B)  monetizing the debt 
C)  open market purchases 
D)  open market sales

Question 10

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 l

Question 11

The equation of exchange states that the quantity of money multiplied by the number of times this money is spent in a given year must equal ________.

Accepted Answer

A)  nominal income 
B)  real income 
C)  real gross national product 
D)  velocity 
A)  nominal income 
B)  real income 
C)  real gross national product 
D)  velocity

Question 12

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 13

Cutting the money supply by one-third is predicted by the quantity theory of money to cause ________.

Accepted Answer

A)  a sharp decline in real output of one-third in the short run, and a fall in the price level by one-third in the long run 
B)  a decline in real output by one-third 
C)  a decline in output by one-sixth, and a decline in the price level of one-sixth 
D)  a decline in the price level by one-third 
A)  a sharp decline in real output of one-third in the short run, and a fall in the price level by one-third in the long run 
B)  a decline in real output by one-third 
C)  a decline in output by one-sixth, and a decline in the price level of one-sixth 
D)  a decline in the price level by one-third

Question 14

One part of monetizing the debt is for the central bank to ________.

Accepted Answer

A)  conduct an open market purchase 
B)  conduct an open market sale 
C)  increasing the overnight rate 
D)  decreasing the overnight rate 
A)  conduct an open market purchase 
B)  conduct an open market sale 
C)  increasing the overnight rate 
D)  decreasing the overnight rate

Question 15

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

Accepted Answer

The liquidity trap describes the situati

Question 16

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 17

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 18

The quantity theory of money is a theory of how ________.

Accepted Answer

A)  the money supply is determined 
B)  interest rates are determined 
C)  the nominal value of aggregate income is determined 
D)  the real value of aggregate income is determined 
A)  the money supply is determined 
B)  interest rates are determined 
C)  the nominal value of aggregate income is determined 
D)  the real value of aggregate income is determined

Question 19

Explain the precautionary motive for holding money in Keynes's liquidity preference theory.

Accepted Answer

Keynes went beyond the classical analysi

Question 20

In March 2007, the inflation rate in Zimbabwe reached ________.

Accepted Answer

A)  over 1500 percent 
B)  over 150 percent 
C)  over 15 percent 
D)  over 15000 percent 
A)  over 1500 percent 
B)  over 150 percent 
C)  over 15 percent 
D)  over 15000 percent

Exam 20: Quantity Theory, Inflation, and the Demand for Money

A plot of Canadian inflation against annual money growth rate between 1971 and 2017 shows ________.

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

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

If the demand for money is unstable then ________.

Explain the conclusion that the quantity theory of money is a good theory of inflation in the long run, but not in the short run. How does is this conclusion related to flexible wages and prices.

The equation of exchange is ________.

According to Keynes's theory of liquidity preference, velocity increases when ________.

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.

Financing a debt through the direct-issue of currency is called ________.

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 equation of exchange states that the quantity of money multiplied by the number of times this money is spent in a given year must equal ________.

The Keynesian theory of money demand predicts that people will increase their money holdings if they believe that ________.

Cutting the money supply by one-third is predicted by the quantity theory of money to cause ________.

One part of monetizing the debt is for the central bank to ________.

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

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

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

The quantity theory of money is a theory of how ________.

Explain the precautionary motive for holding money in Keynes's liquidity preference theory.

In March 2007, the inflation rate in Zimbabwe reached ________.

Why Study Money, Banking, and Financial Markets

An Overview of the Financial System

What Is Money

The Meaning of Interest Rates

The Behaviour 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

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Financial Crises

Banking and the Management of Financial Institutions

Risk Management With Financial Derivatives

Central Banks and the Bank of Canada

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

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.

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