Question 1

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 2

The portfolio theories of money demand state that the demand for real money balances is ________ related to income and ________ related to the nominal interest rate.

Accepted Answer

A) positively;negatively 
B) positively;positively 
C) negatively;negatively 
D) negatively;positively 
A) positively;negatively 
B) positively;positively 
C) negatively;negatively 
D) negatively;positively

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

Of the three motives for holding money suggested by Keynes,which did he believe to be the most sensitive to interest rates?

Accepted Answer

A) the transactions motive 
B) the precautionary motive 
C) the speculative motive 
D) the altruistic motive 
A) the transactions motive 
B) the precautionary motive 
C) the speculative motive 
D) the altruistic motive

Question 5

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 6

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 7

This method of financing government spending is frequently called printing money because high-powered money (the monetary base)is created in the process.

Accepted Answer

A) financing government spending with taxes 
B) financing government spending through a Treasury sale of bonds that are then purchased by the Fed 
C) financing government spending by selling bonds to the public,which pays for the bonds with currency 
D) financing government spending by selling bonds to the public,which pays for the bonds with checks 
A) financing government spending with taxes 
B) financing government spending through a Treasury sale of bonds that are then purchased by the Fed 
C) financing government spending by selling bonds to the public,which pays for the bonds with currency 
D) financing government spending by selling bonds to the public,which pays for the bonds with checks

Question 8

In the late 1990s,M2 velocity ________,suggesting a ________ normal relationship between M2 and macroeconomic variables.

Accepted Answer

A) stabilized;less 
B) stabilized;more 
C) slowed;less 
D) slowed;more 
A) stabilized;less 
B) stabilized;more 
C) slowed;less 
D) slowed;more

Question 9

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 10

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 11

Tobin's model of the speculative demand for money shows that people hold money as a store of wealth as a way of

Accepted Answer

A) reducing risk. 
B) reducing income. 
C) avoiding taxes. 
D) reducing transactions cost. 
A) reducing risk. 
B) reducing income. 
C) avoiding taxes. 
D) reducing transactions cost.

Question 12

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 13

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 14

If the money supply is $600 and nominal income is $3,600,the velocity of money is

Accepted Answer

A) 1/60. 
B) 1/6. 
C) 6. 
D) 60. 
A) 1/60. 
B) 1/6. 
C) 6. 
D) 60.

Question 15

If the money supply is $600 and nominal income is $3,000,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

Empirical evidence shows that the quantity theory of money is a good theory of inflation

Accepted Answer

A) in the long run,but not in the short run. 
B) in the short run,but not in the longrun. 
C) in both the long run and the short run. 
D) not in either the long run nor the short run. 
A) in the long run,but not in the short run. 
B) in the short run,but not in the longrun. 
C) in both the long run and the short run. 
D) not in either the long run nor the short run.

Question 17

In the liquidity trap,monetary policy

Accepted Answer

A) has a large impact on interest rates. 
B) has a small impact on interest rates. 
C) has no impact on interest rates. 
D) has a proportionate impact on interest rates. 
A) has a large impact on interest rates. 
B) has a small impact on interest rates. 
C) has no impact on interest rates. 
D) has a proportionate impact on interest rates.

Question 18

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 19

If people expect nominal interest rates to be lower in the future,the expected return to 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 20

Methods of financing government spending are described by an expression called the government budget constraint,which states the following

Accepted Answer

A) the government budget deficit must equal the sum of the change in the monetary base and the change in government bonds held by the public. 
B) the government budget deficit must equal the difference between the change in the monetary base and the change in government bonds held by the public. 
C) the government budget deficit must equal the difference between the change in the monetary base and the change in government bonds held by the Fed. 
D) the government budget deficit must equal the difference between the change in the monetary base and the change in government bonds held by the Treasury. 
A) the government budget deficit must equal the sum of the change in the monetary base and the change in government bonds held by the public. 
B) the government budget deficit must equal the difference between the change in the monetary base and the change in government bonds held by the public. 
C) the government budget deficit must equal the difference between the change in the monetary base and the change in government bonds held by the Fed. 
D) the government budget deficit must equal the difference between the change in the monetary base and the change in government bonds held by the Treasury.

Exam 19: Quantity Theory, inflation and the Demand for Money

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

The portfolio theories of money demand state that the demand for real money balances is ________ related to income and ________ related to the nominal interest rate.

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

Of the three motives for holding money suggested by Keynes,which did he believe to be the most sensitive to interest rates?

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

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

This method of financing government spending is frequently called printing money because high-powered money (the monetary base)is created in the process.

In the late 1990s,M2 velocity ________,suggesting a ________ normal relationship between M2 and macroeconomic variables.

The Baumol-Tobin analysis suggests that

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

Tobin's model of the speculative demand for money shows that people hold money as a store of wealth as a way of

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 ________."

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.

If the money supply is $600 and nominal income is $3,600,the velocity of money is

If the money supply is $600 and nominal income is $3,000,the velocity of money is

Empirical evidence shows that the quantity theory of money is a good theory of inflation

In the liquidity trap,monetary policy

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

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

Methods of financing government spending are described by an expression called the government budget constraint,which states the following

Why Study Money, banking, and Financial Markets

An Overview of the Financial System

What Is Money

The Meaning of Interest Rates

The Behavior 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

Banking and the Management of Financial Institutions

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Financial Crises

Central Banks and the Federal Reserve System

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

Financial Crises in Emerging Market Economies

The ISLM Model

Filters

The portfolio theories of money demand state that the demand for real money balances is related to income and related to the nominal interest rate.

In the late 1990s,M2 velocity ,suggesting a normal relationship between M2 and macroeconomic variables.

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 ."

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.

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