Question 1

Tobin's model of the speculative demand for money shows that people hold money as a ________ as a way of reducing ________.

Accepted Answer

A) medium of exchange; transaction costs 
B) medium of exchange; risk 
C) store of wealth; transaction costs 
D) store of wealth; risk 
A) medium of exchange; transaction costs 
B) medium of exchange; risk 
C) store of wealth; transaction costs 
D) store of wealth; risk

Question 2

What factors determine the demand for money in the Baumol-Tobin analysis of transactions demand for money? How does a change in each factor affect the quantity of money demanded?

Accepted Answer

The factors are real income, the price l

Question 3

Inflation increased from ________ in 2007 to ________ by the middle of 2008.

Accepted Answer

A) 1 percent; over 3 percent 
B) 1)5 percent; nearly 3 percent 
C) 2)6 percent; over 5 percent 
D) 3 percent; almost 7 percent 
A) 1 percent; over 3 percent 
B) 1)5 percent; nearly 3 percent 
C) 2)6 percent; over 5 percent 
D) 3 percent; almost 7 percent

Question 4

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 5

Inflation hedges ________.

Accepted Answer

A) have real returns that are less affected by inflation 
B) increase the risk and return from holding currency 
C) exhibit zero return 
D) are denominated in nominal terms 
A) have real returns that are less affected by inflation 
B) increase the risk and return from holding currency 
C) exhibit zero return 
D) are denominated in nominal terms

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

The theory of portfolio choice says that the demand for an asset is ________ related to ________.

Accepted Answer

A) positively; wealth 
B) negatively; expected return 
C) negatively; wealth 
D) positively; risk. 
A) positively; wealth 
B) negatively; expected return 
C) negatively; wealth 
D) positively; risk.

Question 8

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 9

Describe what the liquidity trap is. Explain how it can be problematic for monetary policymakers.

Accepted Answer

The liquidity trap describes the situati

Question 10

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 11

Budget deficits can be an important source of ________ monetary policy.

Accepted Answer

A) inflationary 
B) recessionary 
C) federal 
D) fiscal 
A) inflationary 
B) recessionary 
C) federal 
D) fiscal

Question 12

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 13

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 14

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 15

Explain the transactions motive for holding money in Keynes's liquidity preference theory.

Accepted Answer

Following the classical approach, Keynes

Question 16

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 17

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 18

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

Accepted Answer

A) negatively; interest rates 
B) positively; interest rates 
C) negatively; income 
D) negatively; wealth 
A) negatively; interest rates 
B) positively; interest rates 
C) negatively; income 
D) negatively; wealth

Question 19

Keynes hypothesized that the precautionary 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 20

The classical economists believed that if the quantity of money doubled, ________.

Accepted Answer

A) output would double 
B) prices would fall 
C) prices would double 
D) prices would remain constant 
A) output would double 
B) prices would fall 
C) prices would double 
D) prices would remain constant

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

Tobin's model of the speculative demand for money shows that people hold money as a ________ as a way of reducing ________.

What factors determine the demand for money in the Baumol-Tobin analysis of transactions demand for money? How does a change in each factor affect the quantity of money demanded?

Inflation increased from ________ in 2007 to ________ by the middle of 2008.

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

Inflation hedges ________.

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

The theory of portfolio choice says that the demand for an asset is ________ related to ________.

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

Describe what the liquidity trap is. Explain how it can be problematic for monetary policymakers.

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 ________.

Budget deficits can be an important source of ________ monetary policy.

The demand for money represents ________.

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 ________.

The velocity of money is defined as ________.

Explain the transactions motive for holding money in Keynes's liquidity preference theory.

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

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

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

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

The classical economists believed that if the quantity of money doubled, ________.

Why Study Money, Banking, and Financial Markets

An Overview of the Financial System

What Is Money

Understanding 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

Financial Crises

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

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

Financial Crises in Emerging Markets

The ISLM Model

Non-Bank Finance

Filters

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

Inflation increased from in 2007 to by the middle of 2008.

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

The theory of portfolio choice says that the demand for an asset is related to .

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