Question 1

Inflation can be thought of as:

Accepted Answer

A)  an increase in the price of money. 
B)  a decrease in the price of money. 
C)  no change in the price of money, just in the supply of money. 
D)  no change in the price of money, just in the demand for money. 
A)  an increase in the price of money. 
B)  a decrease in the price of money. 
C)  no change in the price of money, just in the supply of money. 
D)  no change in the price of money, just in the demand for money. B

Question 2

All other factors equal, as nominal interest rates decrease, checking account balances should:

Accepted Answer

A)  increase. 
B)  decrease. 
C)  remain constant. 
D)  be converted to cash. 
A)  increase. 
B)  decrease. 
C)  remain constant. 
D)  be converted to cash. A

Question 3

Which of the following would reflect the transactions demand for money?

Accepted Answer

A)  Keeping funds in your checking account to pay your rent 
B)  Keeping funds in your savings account because the interest rate looks relatively attractive 
C)  Selling common stocks you own and increasing the money in your savings account because you think stock prices will fall soon 
D)  Buying a U.S. Treasury security using funds from your checking account 
A)  Keeping funds in your checking account to pay your rent 
B)  Keeping funds in your savings account because the interest rate looks relatively attractive 
C)  Selling common stocks you own and increasing the money in your savings account because you think stock prices will fall soon 
D)  Buying a U.S. Treasury security using funds from your checking account A

Question 4

For a three-year period from October 1979 to October 1982; the FOMC:

Accepted Answer

A)  primarily targeted reserves. 
B)  primarily targeted the real federal funds interest rate. 
C)  primarily targeted M2. 
D)  gave up targeting reserves entirely. 
A)  primarily targeted reserves. 
B)  primarily targeted the real federal funds interest rate. 
C)  primarily targeted M2. 
D)  gave up targeting reserves entirely.

Question 5

The quantity theory of money along with the assumption of a constant velocity can explain which of the following?

Accepted Answer

A)  At a given level of money growth, the higher the level of real growth the higher the level of inflation will be. 
B)  At a given level of money growth, the higher the level of real growth the lower the level of inflation will be. 
C)  If real growth is higher than money growth, the price level must be rising. 
D)  If real growth equals money growth, the price level is falling. 
A)  At a given level of money growth, the higher the level of real growth the higher the level of inflation will be. 
B)  At a given level of money growth, the higher the level of real growth the lower the level of inflation will be. 
C)  If real growth is higher than money growth, the price level must be rising. 
D)  If real growth equals money growth, the price level is falling.

Question 6

The CPI is a commonly used and closely watched measure of inflation. However, it has limitations. What are they?

Accepted Answer

Economists maintain that the CPI, which

Question 7

If on average, a dollar is spent 4 times each year to purchase real output, the velocity of money is:

Accepted Answer

A)  one-fourth. 
B)  four. 
C)  the money supply divided by 4. 
D)  nominal GDP divided by four. 
A)  one-fourth. 
B)  four. 
C)  the money supply divided by 4. 
D)  nominal GDP divided by four.

Question 8

Given that the velocity of money can be unstable in the short run, is this reason enough to dismiss money growth as a policy target? Explain.

Accepted Answer

Not necessarily. Intermediate targets ca

Question 9

In what ways have financial innovations affected the demand for money?

Accepted Answer

People hold money in order to pay for th

Question 10

Empirical research has shown that:

Accepted Answer

A)  in the 1990s and 2000s, velocity was more sensitive to an increase in the opportunity cost of holding money than in the 1980s. 
B)  in the 1990s and 2000s, velocity was less sensitive to an increase in the opportunity cost of holding money than in the 1980s. 
C)  during the 1980s and 1990s, the velocity of money was not sensitive to changes in the opportunity cost of holding money. 
D)  during the 1980s and 1990s, the velocity of money actually decreased as the opportunity cost of holding money increased. 
A)  in the 1990s and 2000s, velocity was more sensitive to an increase in the opportunity cost of holding money than in the 1980s. 
B)  in the 1990s and 2000s, velocity was less sensitive to an increase in the opportunity cost of holding money than in the 1980s. 
C)  during the 1980s and 1990s, the velocity of money was not sensitive to changes in the opportunity cost of holding money. 
D)  during the 1980s and 1990s, the velocity of money actually decreased as the opportunity cost of holding money increased.

Question 11

In high inflation countries, inflation rates can exceed the rate of growth of money because:

Accepted Answer

A)  high inflation increases the velocity of money. 
B)  high rates of inflation increase the opportunity cost of holding money. 
C)  money loses value quickly with inflation. 
D)  all of the answers given are correct. 
A)  high inflation increases the velocity of money. 
B)  high rates of inflation increase the opportunity cost of holding money. 
C)  money loses value quickly with inflation. 
D)  all of the answers given are correct.

Question 12

If M2 is four times larger than M1, the velocity of M1 should be:

Accepted Answer

A)  one-fourth of the velocity of M2. 
B)  equal to the velocity of M2. 
C)  equal to four. 
D)  four times larger than the velocity of M2. 
A)  one-fourth of the velocity of M2. 
B)  equal to the velocity of M2. 
C)  equal to four. 
D)  four times larger than the velocity of M2.

Question 13

The portfolio demand for money reflects:

Accepted Answer

A)  the money we hold for our everyday transactions. 
B)  the portion of wealth people desire to hold in the form of money. 
C)  the money we hold to purchase stocks and bonds and other financial securities. 
D)  the money we hold for our everyday transactions and the money we hold to purchase stocks and bonds and other financial securities. 
A)  the money we hold for our everyday transactions. 
B)  the portion of wealth people desire to hold in the form of money. 
C)  the money we hold to purchase stocks and bonds and other financial securities. 
D)  the money we hold for our everyday transactions and the money we hold to purchase stocks and bonds and other financial securities.

Question 14

Between 1970 and 2000, the Fed:

Accepted Answer

A)  published their targets for money growth and often hit these targets. 
B)  never published targets or actual amounts for money growth. 
C)  published targets for money growth and rarely hit them. 
D)  published actual money growth but not targets. 
A)  published their targets for money growth and often hit these targets. 
B)  never published targets or actual amounts for money growth. 
C)  published targets for money growth and rarely hit them. 
D)  published actual money growth but not targets.

Question 15

Money held for precautionary reasons is included in the demand for money:

Accepted Answer

A)  as a third, separate category called the precautionary demand for money. 
B)  as part of transactions demand. 
C)  as part of portfolio demand. 
D)  partly as transactions demand and partly as portfolio demand. 
A)  as a third, separate category called the precautionary demand for money. 
B)  as part of transactions demand. 
C)  as part of portfolio demand. 
D)  partly as transactions demand and partly as portfolio demand.

Question 16

Assuming a constant nominal GDP, would the velocity of M1 equal the velocity of M2? Explain.

Accepted Answer

No, the velocity of M1 would be greater

Question 17

As a person's wealth increases we would expect the demand for money to:

Accepted Answer

A)  decrease. 
B)  increase dollar for dollar with wealth. 
C)  increase but at a rate less than dollar for dollar. 
D)  not change; money demand does not vary with wealth, only with income. 
A)  decrease. 
B)  increase dollar for dollar with wealth. 
C)  increase but at a rate less than dollar for dollar. 
D)  not change; money demand does not vary with wealth, only with income.

Question 18

All other factors equal, as nominal interest rates increase, checking account balances should:

Accepted Answer

A)  increase. 
B)  decrease. 
C)  remain constant. 
D)  be converted to cash. 
A)  increase. 
B)  decrease. 
C)  remain constant. 
D)  be converted to cash.

Question 19

The empirical data reveals the velocity of M2 to be:

Accepted Answer

A)  relatively stable in the long run. 
B)  highly volatile in the long run. 
C)  stable only when measured annually. 
D)  higher than the velocity of M1. 
A)  relatively stable in the long run. 
B)  highly volatile in the long run. 
C)  stable only when measured annually. 
D)  higher than the velocity of M1.

Question 20

If real GDP stays the same but the price level increases:

Accepted Answer

A)  nominal money demand should remain the same. 
B)  nominal money demand should decrease. 
C)  nominal money demand should increase. 
D)  real money demand should decrease. 
A)  nominal money demand should remain the same. 
B)  nominal money demand should decrease. 
C)  nominal money demand should increase. 
D)  real money demand should decrease.

Exam 20:Money Growth, Money Demand and Modern Monetary Policy

Inflation can be thought of as:

All other factors equal, as nominal interest rates decrease, checking account balances should:

Which of the following would reflect the transactions demand for money?

For a three-year period from October 1979 to October 1982; the FOMC:

The quantity theory of money along with the assumption of a constant velocity can explain which of the following?

The CPI is a commonly used and closely watched measure of inflation. However, it has limitations. What are they?

If on average, a dollar is spent 4 times each year to purchase real output, the velocity of money is:

Given that the velocity of money can be unstable in the short run, is this reason enough to dismiss money growth as a policy target? Explain.

In what ways have financial innovations affected the demand for money?

Empirical research has shown that:

In high inflation countries, inflation rates can exceed the rate of growth of money because:

If M2 is four times larger than M1, the velocity of M1 should be:

The portfolio demand for money reflects:

Between 1970 and 2000, the Fed:

Money held for precautionary reasons is included in the demand for money:

Assuming a constant nominal GDP, would the velocity of M1 equal the velocity of M2? Explain.

As a person's wealth increases we would expect the demand for money to:

All other factors equal, as nominal interest rates increase, checking account balances should:

The empirical data reveals the velocity of M2 to be:

If real GDP stays the same but the price level increases:

An Introduction to Money and the Financial System

Money and the Payments System

Financial Instruments, Financial Markets, and Financial Institutions

Future Value, Present Value and Interest Rates

Understanding Risk

Bonds, Bond Prices, and the Determination of Interest Rates

The Risk and Term Structure of Interest Rates

Stocks, Stock Markets and Market Efficiency

Derivatives: Futures, Options, and Swaps

Foreign Exchange

The Economics of Financial Intermediation

Depository Institutions: Banks and Bank Management

Financial Industry Structure

Regulating the Financial System

Central Banks in the World Today

The Structure of Central Banks: The Federal Reserve and the European Central Bank

The Central Bank Balance Sheet and the Money Supply Process

Monetary Policy: Stabilizing the Domestic Economy

Exchange Rate Policy and the Central Bank

Output, Inflation, and Monetary Policy

Understanding Business Cycle Fluctuations

Modern Monetary Policy and the Challenges Facing Central Bankers

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