Question 1

What factors can cause the portfolio demand for money to increase?

Accepted Answer

The portfolio demand for money arises be

Question 2

One cost that potentially could result from central banks targeting money growth is:

Accepted Answer

A)  high inflation. 
B)  a slowdown in financial innovation. 
C)  volatile interest rates. 
D)  decreased independence. 
A)  high inflation. 
B)  a slowdown in financial innovation. 
C)  volatile interest rates. 
D)  decreased independence.

Question 3

Consider the following ratio: the average annual inflation rate/the average annual money growth rate. A country with a ratio less than one would have:

Accepted Answer

A)  an average inflation rate greater than the average rate of money growth. 
B)  an average inflation rate less than the average rate of money growth. 
C)  to have a high unemployment rate. 
D)  an economy suffering from a recession. 
A)  an average inflation rate greater than the average rate of money growth. 
B)  an average inflation rate less than the average rate of money growth. 
C)  to have a high unemployment rate. 
D)  an economy suffering from a recession.

Question 4

The empirical evidence on the velocity of money, specifically M2, shows it to be relatively stable over the long run. Does this imply that monetary policymakers really should focus on the growth rate of money for economic stability?

Accepted Answer

Not really. While it is true that over t

Question 5

When the currency loses value, causing people to spend it more quickly, this:

Accepted Answer

A)  has the same effect on inflation as an increase in money growth. 
B)  has the same effect on inflation as a decrease in money growth. 
C)  causes higher inflation but not as much as an increase in money growth would. 
D)  causes even higher inflation than an increase in money growth would. 
A)  has the same effect on inflation as an increase in money growth. 
B)  has the same effect on inflation as a decrease in money growth. 
C)  causes higher inflation but not as much as an increase in money growth would. 
D)  causes even higher inflation than an increase in money growth would.

Question 6

Irving Fisher derived the quantity theory of money from the equation of exchange. What two assumptions did he make to derive the theory and what is the basic assertion of the theory?

Accepted Answer

The basic assumptions Fisher made are th

Question 7

Between 1970 and 2000, if the Fed had tried to hit the money growth targets:

Accepted Answer

A)  the economy would have likely experienced very high inflation. 
B)  the federal funds rate would have changed often and by large amounts. 
C)  the interest rates would have likely been more stable. 
D)  the economy would have likely experienced very high inflation but the interest rates would have likely been more stable. 
A)  the economy would have likely experienced very high inflation. 
B)  the federal funds rate would have changed often and by large amounts. 
C)  the interest rates would have likely been more stable. 
D)  the economy would have likely experienced very high inflation but the interest rates would have likely been more stable.

Question 8

Which of the following expresses the equation of exchange?

Accepted Answer

A)  MY = PV 
B)  MV = Y 
C)  MV = PY 
D)  MP = VY 
A)  MY = PV 
B)  MV = Y 
C)  MV = PY 
D)  MP = VY

Question 9

According to the equation of exchange, if real output and the money supply stay the same and the price level increases:

Accepted Answer

A)  the velocity of money has to increase. 
B)  the velocity of money has to decrease. 
C)  the real GDP had to rise. 
D)  nominal GDP remains constant. 
A)  the velocity of money has to increase. 
B)  the velocity of money has to decrease. 
C)  the real GDP had to rise. 
D)  nominal GDP remains constant.

Question 10

What would the portfolio demand for money look like if it were graphed on a set of axes? What would each axis represent?

Accepted Answer

The portfolio demand for money arises be

Question 11

The velocity of money increases if:

Accepted Answer

A)  each unit of money is used more frequently. 
B)  each unit of money is used less frequently. 
C)  more purchases are made. 
D)  none of the above answers is correct; the velocity of money is constant. 
A)  each unit of money is used more frequently. 
B)  each unit of money is used less frequently. 
C)  more purchases are made. 
D)  none of the above answers is correct; the velocity of money is constant.

Question 12

If M = the money supply; Y = real output, P = the price level, and V = velocity, which of the following equals the velocity of money?

Accepted Answer

A)  (Y × M)/P 
B)  (P × M)/Y 
C)  (P × Y)/M 
D)  (P × Y) + M 
A)  (Y × M)/P 
B)  (P × M)/Y 
C)  (P × Y)/M 
D)  (P × Y) + M

Question 13

On what aspect of policymaking, according to Robert Lucas, have policymakers been shortsighted in the past?

Accepted Answer

The Lucas critique focuses on the fact t

Question 14

If we consider the quantity theory of money and Professor Irving Fisher, who did a lot of his work in the early 20th century, why might Professor Fisher feel less confident about predicting constant velocity of money today than when he did his work?

Accepted Answer

No, Professor Fisher would not have been

Question 15

If the correlation between the rate of inflation and the rate of money growth were closer to
-1 rather than +1 would the Fed care any more or less about the growth rate of money? Explain your answer.

Accepted Answer

The Fed would still pay attention to it

Question 16

A decline in the yields earned by bonds should:

Accepted Answer

A)  not impact the demand for money since money doesn't earn any interest. 
B)  also decrease the demand for money. 
C)  increase the demand for money. 
D)  increase the velocity of money. 
A)  not impact the demand for money since money doesn't earn any interest. 
B)  also decrease the demand for money. 
C)  increase the demand for money. 
D)  increase the velocity of money.

Question 17

Equilibrium in the money market would be expressed by which of the following?

Accepted Answer

A)  Ms = (1/V)Y 
B)  Ms =Md 
C)  Ms = (1/V)P 
D)  Md = (1/V)P 
A)  Ms = (1/V)Y 
B)  Ms =Md 
C)  Ms = (1/V)P 
D)  Md = (1/V)P

Question 18

Which of the following statements is most correct?

Accepted Answer

A)  The current rate of inflation is the result of money growth. 
B)  Money growth is the result of inflation. 
C)  There is no clear link between high, sustained inflation and the monetary aggregates. 
D)  It is impossible to have high, sustained inflation without monetary accommodation. 
A)  The current rate of inflation is the result of money growth. 
B)  Money growth is the result of inflation. 
C)  There is no clear link between high, sustained inflation and the monetary aggregates. 
D)  It is impossible to have high, sustained inflation without monetary accommodation.

Question 19

History shows that:

Accepted Answer

A)  countries with low rates of money growth have high rates of inflation. 
B)  money growth and inflation are not related. 
C)  countries with high rates of money growth have high rates of inflation. 
D)  money growth rates equal inflation rates. 
A)  countries with low rates of money growth have high rates of inflation. 
B)  money growth and inflation are not related. 
C)  countries with high rates of money growth have high rates of inflation. 
D)  money growth rates equal inflation rates.

Question 20

The higher the nominal interest rate:

Accepted Answer

A)  the less money individuals will hold for any given level of transactions and the higher the velocity of money. 
B)  the more money individuals will hold for any given level of transactions and the higher the velocity of money. 
C)  the more money individuals will hold for any given level of transactions and the lower the velocity of money. 
D)  the less money individuals will hold for any given level of transactions and the lower the velocity of money. 
A)  the less money individuals will hold for any given level of transactions and the higher the velocity of money. 
B)  the more money individuals will hold for any given level of transactions and the higher the velocity of money. 
C)  the more money individuals will hold for any given level of transactions and the lower the velocity of money. 
D)  the less money individuals will hold for any given level of transactions and the lower the velocity of money.

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

What factors can cause the portfolio demand for money to increase?

One cost that potentially could result from central banks targeting money growth is:

Consider the following ratio: the average annual inflation rate/the average annual money growth rate. A country with a ratio less than one would have:

The empirical evidence on the velocity of money, specifically M2, shows it to be relatively stable over the long run. Does this imply that monetary policymakers really should focus on the growth rate of money for economic stability?

When the currency loses value, causing people to spend it more quickly, this:

Irving Fisher derived the quantity theory of money from the equation of exchange. What two assumptions did he make to derive the theory and what is the basic assertion of the theory?

Between 1970 and 2000, if the Fed had tried to hit the money growth targets:

Which of the following expresses the equation of exchange?

According to the equation of exchange, if real output and the money supply stay the same and the price level increases:

What would the portfolio demand for money look like if it were graphed on a set of axes? What would each axis represent?

The velocity of money increases if:

If M = the money supply; Y = real output, P = the price level, and V = velocity, which of the following equals the velocity of money?

On what aspect of policymaking, according to Robert Lucas, have policymakers been shortsighted in the past?

If we consider the quantity theory of money and Professor Irving Fisher, who did a lot of his work in the early 20th century, why might Professor Fisher feel less confident about predicting constant velocity of money today than when he did his work?

If the correlation between the rate of inflation and the rate of money growth were closer to -1 rather than +1 would the Fed care any more or less about the growth rate of money? Explain your answer.

A decline in the yields earned by bonds should:

Equilibrium in the money market would be expressed by which of the following?

Which of the following statements is most correct?

History shows that:

The higher the nominal interest rate:

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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