Question 1

Explain why "free" checking accounts are not really free.

Accepted Answer

Even some bankers suggest that "free" ch

Question 2

If you were going to write a function for money demand, you would say that the demand for money holdings:

Accepted Answer

A) varies directly with both the nominal interest rate and nominal income. 
B) varies inversely with both the nominal interest rate and nominal income. 
C) varies inversely with nominal income and directly with the nominal interest rate. 
D) varies inversely with the nominal interest rate and directly with nominal income. 
A) varies directly with both the nominal interest rate and nominal income. 
B) varies inversely with both the nominal interest rate and nominal income. 
C) varies inversely with nominal income and directly with the nominal interest rate. 
D) varies inversely with the nominal interest rate and directly with nominal income.

Question 3

Why did a decline in mortgage rates in the 1990s cause the velocity of M2 to fluctuate?

Accepted Answer

When mortgage rates fall (as they did in

Question 4

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 5

Is it a necessary condition that velocity is constant and that real output growth is assumed to be zero to have Milton Friedman's assertion that inflation is a monetary phenomenon be true?

Accepted Answer

Not really.Friedman's assertion would ho

Question 6

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 7

Milton Friedman's assertion that "inflation is a monetary phenomenon" is based on:

Accepted Answer

A) the quantity theory of money. 
B) the assumption of constant nominal GDP growth. 
C) the assumption that the price level grows at the same rate as real GDP. 
D) the assumption that the central bank increases the money supply by a constant rate every year. 
A) the quantity theory of money. 
B) the assumption of constant nominal GDP growth. 
C) the assumption that the price level grows at the same rate as real GDP. 
D) the assumption that the central bank increases the money supply by a constant rate every year.

Question 8

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

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 9

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 10

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 11

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

Accepted Answer

People hold money in order to pay for th

Question 12

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 13

The velocity of money equals:

Accepted Answer

A) nominal GDP times the price level. 
B) nominal GDP times the money supply. 
C) nominal GDP divided by the price level. 
D) nominal GDP divided by the money supply. 
A) nominal GDP times the price level. 
B) nominal GDP times the money supply. 
C) nominal GDP divided by the price level. 
D) nominal GDP divided by the money supply.

Question 14

Control of money growth to stabilize inflation only works if velocity were constant.In practice, changes in velocity:

Accepted Answer

A) can safely be ignored in countries with relatively low inflation rates. 
B) are important when inflation is low. 
C) must be taken into account no matter what the inflation rate. 
D) can always safely be ignored. 
A) can safely be ignored in countries with relatively low inflation rates. 
B) are important when inflation is low. 
C) must be taken into account no matter what the inflation rate. 
D) can always safely be ignored.

Question 15

Which of the following statements is true?

Accepted Answer

A) While the Fed emphasizes money growth more than the ECB, both central banks have chosen interest rates as their operating target. 
B) While the Fed emphasizes money growth less than the ECB, both central banks have chosen interest rates as their operating target. 
C) Because the Fed emphasizes money growth less than the ECB, the Fed uses interest rates as their operating target while the ECB looks at growth in money aggregates. 
D) Both the Fed and the ECB use growth in money aggregates as their operating target. 
A) While the Fed emphasizes money growth more than the ECB, both central banks have chosen interest rates as their operating target. 
B) While the Fed emphasizes money growth less than the ECB, both central banks have chosen interest rates as their operating target. 
C) Because the Fed emphasizes money growth less than the ECB, the Fed uses interest rates as their operating target while the ECB looks at growth in money aggregates. 
D) Both the Fed and the ECB use growth in money aggregates as their operating target.

Question 16

If the price of money is determined by supply and demand, what impact should a decrease in the supply of money (given steady money demand) have on the price of money and the rate of inflation?

Accepted Answer

A decrease in the supply of money would

Question 17

If money were valued in terms of how many minutes a person needs to work to buy a dollar, an increase in the number of minutes of work needed would be:

Accepted Answer

A) a decline in the price of money. 
B) an increase in the price of money. 
C) no change in the real price of money, just the nominal price increases. 
D) no change in the real or nominal price of money. 
A) a decline in the price of money. 
B) an increase in the price of money. 
C) no change in the real price of money, just the nominal price increases. 
D) no change in the real or nominal price of money.

Question 18

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 19

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.

Question 20

The only solution available to a country experiencing extremely high rates of inflation is to:

Accepted Answer

A) raise interest rates. 
B) peg your currency to another country's currency. 
C) reduce money growth. 
D) revert to a gold standard. 
A) raise interest rates. 
B) peg your currency to another country's currency. 
C) reduce money growth. 
D) revert to a gold standard.

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

Explain why "free" checking accounts are not really free.

If you were going to write a function for money demand, you would say that the demand for money holdings:

Why did a decline in mortgage rates in the 1990s cause the velocity of M2 to fluctuate?

Which of the following expresses the equation of exchange?

Is it a necessary condition that velocity is constant and that real output growth is assumed to be zero to have Milton Friedman's assertion that inflation is a monetary phenomenon be true?

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

Milton Friedman's assertion that "inflation is a monetary phenomenon" is based on:

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

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

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

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

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 velocity of money equals:

Control of money growth to stabilize inflation only works if velocity were constant.In practice, changes in velocity:

Which of the following statements is true?

If the price of money is determined by supply and demand, what impact should a decrease in the supply of money (given steady money demand) have on the price of money and the rate of inflation?

If money were valued in terms of how many minutes a person needs to work to buy a dollar, an increase in the number of minutes of work needed would be:

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

Inflation can be thought of as:

The only solution available to a country experiencing extremely high rates of inflation is to:

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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