Question 1

The demand for money represents ________.

Accepted Answer

A)  the quantity of money that people want to hold 
B)  the relationship between inflation rates and the quantity of money 
C)  the relationship between interest rates and income 
D)  All of the above. 
A)  the quantity of money that people want to hold 
B)  the relationship between inflation rates and the quantity of money 
C)  the relationship between interest rates and income 
D)  All of the above.

Question 2

The effect of money on the economy is called ________.

Accepted Answer

A)  monetary supply 
B)  monetary policy 
C)  fiscal policy 
D)  monetary demand 
A)  monetary supply 
B)  monetary policy 
C)  fiscal policy 
D)  monetary demand

Question 3

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 4

If the money demand function is unstable then ________.

Accepted Answer

A)  velocity of money is unstable and monetary policy is more effective 
B)  monetary policy is ineffective 
C)  fiscal policy is more effective than monetary policy 
D)  neither fiscal nor monetary policy will impact aggregate output 
A)  velocity of money is unstable and monetary policy is more effective 
B)  monetary policy is ineffective 
C)  fiscal policy is more effective than monetary policy 
D)  neither fiscal nor monetary policy will impact aggregate output

Question 5

The classical economists' contention that prices double when the money supply doubles is predicated on the belief that in the short run velocity is ________ and real GDP is ________.

Accepted Answer

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

Question 6

The velocity of money is ________.

Accepted Answer

A)  the average number of times that a dollar is spent in buying the total amount of final goods and services 
B)  the ratio of the money stock to high-powered money 
C)  the ratio of the money stock to interest rates 
D)  the average number of times a dollar is spent in buying financial assets 
A)  the average number of times that a dollar is spent in buying the total amount of final goods and services 
B)  the ratio of the money stock to high-powered money 
C)  the ratio of the money stock to interest rates 
D)  the average number of times a dollar is spent in buying financial assets

Question 7

In one of the earliest studies on the link between interest rates and money demand using United States data, James Tobin concluded that the demand for money is ________.

Accepted Answer

A)  sensitive to interest rates 
B)  not sensitive to interest rates 
C)  not sensitive to changes in income 
D)  not sensitive to changes in bond values 
A)  sensitive to interest rates 
B)  not sensitive to interest rates 
C)  not sensitive to changes in income 
D)  not sensitive to changes in bond values

Question 8

Examples of inflation hedges include ________.

Accepted Answer

A)  real return bonds 
B)  the stock market 
C)  bonds 
D)  currency 
A)  real return bonds 
B)  the stock market 
C)  bonds 
D)  currency

Question 9

The government can ________ by ________.

Accepted Answer

A)  raise revenue; levying taxes 
B)  go into debt; issuing government bonds. 
C)  create money; levying taxes. 
D)  A and B only. 
A)  raise revenue; levying taxes 
B)  go into debt; issuing government bonds. 
C)  create money; levying taxes. 
D)  A and B only.

Question 10

Irving Fisher's view that velocity is fairly constant in the short run transforms the equation of exchange into the ________.

Accepted Answer

A)  Friedman's theory of income determination 
B)  quantity theory of money 
C)  Keynesian theory of income determination 
D)  monetary theory of income determination 
A)  Friedman's theory of income determination 
B)  quantity theory of money 
C)  Keynesian theory of income determination 
D)  monetary theory of income determination

Question 11

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 12

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 13

If people expect nominal interest rates to be lower in the future, the expected return on bonds ________, and the demand for money ________.

Accepted Answer

A)  increases; increases 
B)  increases; decreases 
C)  decreases; increases 
D)  decreases; decreases 
A)  increases; increases 
B)  increases; decreases 
C)  decreases; increases 
D)  decreases; decreases

Question 14

Keynes hypothesized that the speculative 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 15

If the money supply is $600 and nominal income is $3000, the velocity of money is ________.

Accepted Answer

A)  1/50 
B)  1/5 
C)  5 
D)  50 
A)  1/50 
B)  1/5 
C)  5 
D)  50

Question 16

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

Accepted Answer

A)  income; interest rates 
B)  brokerage fees; interest rates 
C)  interest rates; the price level 
D)  brokerage fees; income 
A)  income; interest rates 
B)  brokerage fees; interest rates 
C)  interest rates; the price level 
D)  brokerage fees; income

Question 17

If there are economies of scale in the transactions demand for money, as income increases, money demand ________.

Accepted Answer

A)  increases proportionately 
B)  increases less than proportionately 
C)  increases more than proportionately 
D)  does not change 
A)  increases proportionately 
B)  increases less than proportionately 
C)  increases more than proportionately 
D)  does not change

Question 18

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 19

The Baumol-Tobin analysis suggests that an increase 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; increase 
D)  decrease; decrease 
A)  increase; increase 
B)  increase; decrease 
C)  decrease; increase 
D)  decrease; decrease

Question 20

Indifference curves in the mean-variance model are ________.

Accepted Answer

A)  downward sloping 
B)  upward sloping 
C)  based on Leontief assumptions 
D)  discontinuous 
A)  downward sloping 
B)  upward sloping 
C)  based on Leontief assumptions 
D)  discontinuous

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

The demand for money represents ________.

The effect of money on the economy is called ________.

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

If the money demand function is unstable then ________.

The classical economists' contention that prices double when the money supply doubles is predicated on the belief that in the short run velocity is ________ and real GDP is ________.

The velocity of money is ________.

In one of the earliest studies on the link between interest rates and money demand using United States data, James Tobin concluded that the demand for money is ________.

Examples of inflation hedges include ________.

The government can ________ by ________.

Irving Fisher's view that velocity is fairly constant in the short run transforms the equation of exchange into the ________.

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 ________.

The Baumol-Tobin analysis suggests that ________.

If people expect nominal interest rates to be lower in the future, the expected return on bonds ________, and the demand for money ________.

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

If the money supply is $600 and nominal income is $3000, the velocity of money is ________.

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

If there are economies of scale in the transactions demand for money, as income increases, money demand ________.

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 ________.

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

Indifference curves in the mean-variance model are ________.

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' contention that prices double when the money supply doubles is predicated on the belief that in the short run velocity is and real GDP is .

The government can by .

If people expect nominal interest rates to be lower in the future, the expected return on bonds , and the demand for money .

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

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 .

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