Question 1

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 2

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 3

For many of the countries that made up the Soviet Union, the period immediately following the collapse of the Soviet Union in 1990 found these countries experiencing:

Accepted Answer

A) rapid economic growth. 
B) severe deflation. 
C) rapid development of financial intermediaries. 
D) extremely high rates of inflation. 
A) rapid economic growth. 
B) severe deflation. 
C) rapid development of financial intermediaries. 
D) extremely high rates of inflation.

Question 4

Is keeping money growth low when the central bank can accurately forecast real growth a guarantee that short-run inflation will not occur? Explain

Accepted Answer

No.The velocity of money can be volatile

Question 5

Stable velocity as a contributing factor to successfully using money growth as a stabilizing monetary policy tool, is more important in an environment where:

Accepted Answer

A) inflation is extremely high (e.g., over 100 percent). 
B) inflation is low (e.g., less than 10 percent). 
C) inflation occurs, the problems caused by a variable velocity are just as severe at low levels of inflation as at high levels of inflation. 
D) there is deflation. 
A) inflation is extremely high (e.g., over 100 percent). 
B) inflation is low (e.g., less than 10 percent). 
C) inflation occurs, the problems caused by a variable velocity are just as severe at low levels of inflation as at high levels of inflation. 
D) there is deflation.

Question 6

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.

Question 7

When the former Soviet Union collapsed in 1990, most of the countries that made up the union experienced extremely high rate of inflation? What was the source of the high inflation and why did it happen?

Accepted Answer

The source of the high inflation in thos

Question 8

You graduate from law school and can now begin charging clients fees for your time.What impact will this have on your demand for money?

Accepted Answer

A) Your increased income will likely cause your demand for money to decrease 
B) Your opportunity cost of making trips to the bank will decrease 
C) Your increased income will likely cause your demand for money to increase 
D) Your demand for money will not be affected 
A) Your increased income will likely cause your demand for money to decrease 
B) Your opportunity cost of making trips to the bank will decrease 
C) Your increased income will likely cause your demand for money to increase 
D) Your demand for money will not be affected

Question 9

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 10

For many of the countries that made up the Soviet Union, the period immediately following the collapse of the Soviet Union in 1990 found these countries experiencing extremely high rates of inflation.To solve this problem, a number of countries:

Accepted Answer

A) turned the authority to print money over to an independent central bank. 
B) imposed price controls. 
C) devalued their currencies. 
D) returned to a gold standard. 
A) turned the authority to print money over to an independent central bank. 
B) imposed price controls. 
C) devalued their currencies. 
D) returned to a gold standard.

Question 11

If your bank offers you free checking if your average balance is at least $1000 and you would normally carry an average balance of $500, what is the annual cost to you of free checking if bonds are paying a 5.0% return?

Accepted Answer

A) $50.00 
B) $0.00 
C) $20.00 
D) $25.00 
A) $50.00 
B) $0.00 
C) $20.00 
D) $25.00

Question 12

All other factors equal, if the costs of converting bonds and other financial securities to a means of payment decrease:

Accepted Answer

A) the transactions demand for money should increase. 
B) the transactions demand for money should decrease. 
C) it shouldn't impact the transactions demand for money. 
D) nominal interest rates should decrease. 
A) the transactions demand for money should increase. 
B) the transactions demand for money should decrease. 
C) it shouldn't impact the transactions demand for money. 
D) nominal interest rates should decrease.

Question 13

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 th

Question 14

Based on the analysis of the equation of exchange, Irving Fisher, derived the quantity theory of money which states that:

Accepted Answer

A) velocity changes always offset changes in the supply of money. 
B) changes in the aggregate price level are caused solely by changes in velocity. 
C) changes in the aggregate price level are caused solely by changes in the quantity of money. 
D) none of the answers given is correct. 
A) velocity changes always offset changes in the supply of money. 
B) changes in the aggregate price level are caused solely by changes in velocity. 
C) changes in the aggregate price level are caused solely by changes in the quantity of money. 
D) none of the answers given is correct.

Question 15

If the nominal interest rate increases:

Accepted Answer

A) the cost of holding money decreases. 
B) the cost of holding money increases. 
C) the velocity of money should decrease. 
D) the cost of holding money increases and the velocity of money should decrease. 
A) the cost of holding money decreases. 
B) the cost of holding money increases. 
C) the velocity of money should decrease. 
D) the cost of holding money increases and the velocity of money should decrease.

Question 16

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 17

Which of the following statements best completes the sentence, "All other factors constant, as the nominal interest rate increases, the opportunity cost of money..."?

Accepted Answer

A) decreases, the velocity of money decreases, and the quantity of money people want to hold decreases. 
B) increases, the velocity of money decreases, and the quantity of money people want to hold decreases. 
C) decreases, the velocity of money increases, and the quantity of money people want to hold decreases. 
D) increases, the velocity of money increases, and the quantity of money people want to hold decreases. 
A) decreases, the velocity of money decreases, and the quantity of money people want to hold decreases. 
B) increases, the velocity of money decreases, and the quantity of money people want to hold decreases. 
C) decreases, the velocity of money increases, and the quantity of money people want to hold decreases. 
D) increases, the velocity of money increases, and the quantity of money people want to hold decreases.

Question 18

Economic researchers have found:

Accepted Answer

A) no examples of countries with high rates of money growth and low inflation rates. 
B) many examples of countries with low rates of money growth and high inflation rates. 
C) many examples of countries with high rates of money growth and low inflation rates. 
D) no relationship between rates of money growth and inflation rates. 
A) no examples of countries with high rates of money growth and low inflation rates. 
B) many examples of countries with low rates of money growth and high inflation rates. 
C) many examples of countries with high rates of money growth and low inflation rates. 
D) no relationship between rates of money growth and inflation rates.

Question 19

To use money growth as a short-term monetary policy instrument, a central bank must:

Accepted Answer

A) believe there is a stable link between the monetary base and the rate of inflation. 
B) believe that only money matters. 
C) believe that there is an unpredictable relationship between money aggregates and inflation. 
D) believe the deposit expansion multiplier is volatile and unpredictable. 
A) believe there is a stable link between the monetary base and the rate of inflation. 
B) believe that only money matters. 
C) believe that there is an unpredictable relationship between money aggregates and inflation. 
D) believe the deposit expansion multiplier is volatile and unpredictable.

Question 20

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.

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

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

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

For many of the countries that made up the Soviet Union, the period immediately following the collapse of the Soviet Union in 1990 found these countries experiencing:

Is keeping money growth low when the central bank can accurately forecast real growth a guarantee that short-run inflation will not occur? Explain

Stable velocity as a contributing factor to successfully using money growth as a stabilizing monetary policy tool, is more important in an environment where:

The higher the nominal interest rate:

When the former Soviet Union collapsed in 1990, most of the countries that made up the union experienced extremely high rate of inflation? What was the source of the high inflation and why did it happen?

You graduate from law school and can now begin charging clients fees for your time.What impact will this have on your demand for money?

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?

For many of the countries that made up the Soviet Union, the period immediately following the collapse of the Soviet Union in 1990 found these countries experiencing extremely high rates of inflation.To solve this problem, a number of countries:

If your bank offers you free checking if your average balance is at least $1000 and you would normally carry an average balance of $500, what is the annual cost to you of free checking if bonds are paying a 5.0% return?

All other factors equal, if the costs of converting bonds and other financial securities to a means of payment decrease:

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?

Based on the analysis of the equation of exchange, Irving Fisher, derived the quantity theory of money which states that:

If the nominal interest rate increases:

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

Which of the following statements best completes the sentence, "All other factors constant, as the nominal interest rate increases, the opportunity cost of money..."?

Economic researchers have found:

To use money growth as a short-term monetary policy instrument, a central bank must:

The portfolio demand for money reflects:

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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