Question 1

If the government deficit is financed by an increase in bond holdings by the public ________.

Accepted Answer

A)  there is no effect of the monetary base 
B)  there is no effect on the money supply 
C)  the money supply increases 
D)  A and B only 
A)  there is no effect of the monetary base 
B)  there is no effect on the money supply 
C)  the money supply increases 
D)  A and B only

Question 2

If nominal GDP is $8 trillion, and the money supply is $2 trillion, velocity is ________.

Accepted Answer

A)  0.25 
B)  4 
C)  8 
D)  16 
A)  0.25 
B)  4 
C)  8 
D)  16

Question 3

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

Accepted Answer

A)  constant 
B)  positively related to interest rates 
C)  negatively related to interest rates 
D)  negatively related to bond values 
A)  constant 
B)  positively related to interest rates 
C)  negatively related to interest rates 
D)  negatively related to bond values

Question 4

In the Baumol-Tobin model, as interest rates increase ________.

Accepted Answer

A)  the amount of cash held for transaction purposes falls and velocity and interest rates are positively correlated 
B)  the amount of cash held for transaction purposes falls and velocity and interest rates are negatively correlated 
C)  the amount of cash held for transaction purposes rises and velocity and interest rates are positively correlated 
D)  the amount of cash held for transaction purposes rises and velocity and interest rates are negatively correlated 
A)  the amount of cash held for transaction purposes falls and velocity and interest rates are positively correlated 
B)  the amount of cash held for transaction purposes falls and velocity and interest rates are negatively correlated 
C)  the amount of cash held for transaction purposes rises and velocity and interest rates are positively correlated 
D)  the amount of cash held for transaction purposes rises and velocity and interest rates are negatively correlated

Question 5

The Zimbabwean hyperinflation was caused by ________.

Accepted Answer

A)  the government printing currency 
B)  wars between rebel factions 
C)  budget surplus 
D)  the agricultural sector 
A)  the government printing currency 
B)  wars between rebel factions 
C)  budget surplus 
D)  the agricultural sector

Question 6

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 7

The average number of times that a dollar is spent in buying the total amount of final goods and services produced during a given time period is known as ________.

Accepted Answer

A)  gross national product 
B)  the spending multiplier 
C)  the money multiplier 
D)  velocity 
A)  gross national product 
B)  the spending multiplier 
C)  the money multiplier 
D)  velocity

Question 8

The classical economists' conclusion that nominal income is determined by movements in the money supply rested on their belief that ________ could be treated as ________ in the short run.

Accepted Answer

A)  velocity; constant 
B)  velocity; variable 
C)  money; constant 
D)  money; variable 
A)  velocity; constant 
B)  velocity; variable 
C)  money; constant 
D)  money; variable

Question 9

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 10

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 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

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 13

Financial innovation will ________ and ________.

Accepted Answer

A)  improve the liquidity of alternative assets; decrease the demand for money 
B)  improve the liquidity of alternative assets; increase the demand for money 
C)  reduce the relative liquidity of money; increase the demand for money 
D)  A and C only 
A)  improve the liquidity of alternative assets; decrease the demand for money 
B)  improve the liquidity of alternative assets; increase the demand for money 
C)  reduce the relative liquidity of money; increase the demand for money 
D)  A and C only

Question 14

There are ________ factors that affect the demand for money.

Accepted Answer

A)  three 
B)  five 
C)  six 
D)  seven 
A)  three 
B)  five 
C)  six 
D)  seven

Question 15

Tobin's model of the speculative demand for money shows that people can reduce their ________ by ________ their asset holdings.

Accepted Answer

A)  wealth; diversifying 
B)  risk; specializing 
C)  return; diversifying 
D)  risk; diversifying 
A)  wealth; diversifying 
B)  risk; specializing 
C)  return; diversifying 
D)  risk; diversifying

Question 16

Irving Fisher took the view that the institutional features of the economy which affect velocity change ________ over time so that velocity will be fairly ________ in the short run.

Accepted Answer

A)  rapidly; erratic 
B)  rapidly; stable 
C)  slowly; stable 
D)  slowly; erratic 
A)  rapidly; erratic 
B)  rapidly; stable 
C)  slowly; stable 
D)  slowly; erratic

Question 17

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 18

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 19

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 20

Empirically testing the long-term quantity of money for Canada shows ________.

Accepted Answer

A)  a strong positive relationship between inflation and money growth rates 
B)  a weak positive relationship between inflation and money growth rates 
C)  a weak negative relationship between inflation and money growth rates 
D)  a strong negative relationship between inflation and money growth rates 
A)  a strong positive relationship between inflation and money growth rates 
B)  a weak positive relationship between inflation and money growth rates 
C)  a weak negative relationship between inflation and money growth rates 
D)  a strong negative relationship between inflation and money growth rates

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

If the government deficit is financed by an increase in bond holdings by the public ________.

If nominal GDP is $8 trillion, and the money supply is $2 trillion, velocity is ________.

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

In the Baumol-Tobin model, as interest rates increase ________.

The Zimbabwean hyperinflation was caused by ________.

The velocity of money is defined as ________.

The average number of times that a dollar is spent in buying the total amount of final goods and services produced during a given time period is known as ________.

The classical economists' conclusion that nominal income is determined by movements in the money supply rested on their belief that ________ could be treated as ________ in the short run.

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

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

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

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 ________.

Financial innovation will ________ and ________.

There are ________ factors that affect the demand for money.

Tobin's model of the speculative demand for money shows that people can reduce their ________ by ________ their asset holdings.

Irving Fisher took the view that the institutional features of the economy which affect velocity change ________ over time so that velocity will be fairly ________ in the short run.

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

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 Keynesian demand for real balances can be expressed as ________.

Empirically testing the long-term quantity of money for Canada shows ________.

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

The classical economists' conclusion that nominal income is determined by movements in the money supply rested on their belief that could be treated as in the short run.

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

Financial innovation will and .

Tobin's model of the speculative demand for money shows that people can reduce their by their asset holdings.

Irving Fisher took the view that the institutional features of the economy which affect velocity change over time so that velocity will be fairly in the short run.

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

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 ."