Question 1

The opportunity cost of holding money is:

Accepted Answer

A) The nominal interest rate 
B) The real interest rate 
C) The nominal interest rate less the cost of converting a bond to cash 
D) The rate of inflation 
A) The nominal interest rate 
B) The real interest rate 
C) The nominal interest rate less the cost of converting a bond to cash 
D) The rate of inflation

Question 2

History proves 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 3

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 4

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 5

Why does the Fed have to be concerned with money growth even though their main focus seems to be on interest rates?

Accepted Answer

The Fed needs to focus on money growth b

Question 6

The empirical data reveals the velocity of M2 to be:

Accepted Answer

A) Relatively stable in the long run 
B) Highly volatile in the long run 
C) Stable only when measured annually 
D) Higher than the velocity of M1 
A) Relatively stable in the long run 
B) Highly volatile in the long run 
C) Stable only when measured annually 
D) Higher than the velocity of M1

Question 7

If the equation of exchange was expressed for all transactions in the economy instead of real output, all other factors constant, the velocity of money would:

Accepted Answer

A) Remain the same 
B) Decrease 
C) Increase 
D) The answer cannot be determined from the information provided 
A) Remain the same 
B) Decrease 
C) Increase 
D) The answer cannot be determined from the information provided

Question 8

A rate of inflation that exceeds the growth rate of money for a country could be explained by:

Accepted Answer

A) A growing real economy 
B) A constant velocity of money 
C) An increasing velocity of money 
D) A decreasing velocity of money 
A) A growing real economy 
B) A constant velocity of money 
C) An increasing velocity of money 
D) A decreasing velocity of money

Question 9

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 10

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

When Professor Fisher did his work there

Question 11

People have a portfolio demand for money in part because:

Accepted Answer

A) Money is part of a well diversified financial portfolio 
B) The return on money is often higher than other financial assets 
C) Money is needed to pay brokerage commissions 
D) There is no cost to holding money which gives it a relatively high return 
A) Money is part of a well diversified financial portfolio 
B) The return on money is often higher than other financial assets 
C) Money is needed to pay brokerage commissions 
D) There is no cost to holding money which gives it a relatively high return

Question 12

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 13

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) Can safely be ignored in countries with relatively high inflation rates 
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) Can safely be ignored in countries with relatively high inflation rates 
C) Must be taken into account no matter what the inflation rate 
D) Can always safely be ignored

Question 14

A major contributing factor to the instability of money demand over the past 25 years is the:

Accepted Answer

A) Introduction of financial instruments that pay higher returns than money but can be used as a means of payment 
B) Fed has changed the way the money aggregates are defined 
C) Failure of many savings and loans 
D) Introduction of credit cards 
A) Introduction of financial instruments that pay higher returns than money but can be used as a means of payment 
B) Fed has changed the way the money aggregates are defined 
C) Failure of many savings and loans 
D) Introduction of credit cards

Question 15

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 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

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 18

Using the equation of exchange, if inflation is 1.5%, real output grows by 3.0%, and the growth rate of money is 5.0%, the change in the velocity of money is:

Accepted Answer

A) Zero; velocity is constant 
B) -0.5% 
C) +4.5% 
D) +0.5% 
A) Zero; velocity is constant 
B) -0.5% 
C) +4.5% 
D) +0.5%

Question 19

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

Accepted Answer

The portfolio demand for money arises be

Question 20

To say that the relationship between the velocity of money and the opportunity cost of holding money is not stable is the same as saying:

Accepted Answer

A) The supply of money is not stable 
B) The money market is always in disequilibrium 
C) Money demand is stable 
D) Money demand is not stable 
A) The supply of money is not stable 
B) The money market is always in disequilibrium 
C) Money demand is stable 
D) Money demand is not stable

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

The opportunity cost of holding money is:

History proves that:

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

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

Why does the Fed have to be concerned with money growth even though their main focus seems to be on interest rates?

The empirical data reveals the velocity of M2 to be:

If the equation of exchange was expressed for all transactions in the economy instead of real output, all other factors constant, the velocity of money would:

A rate of inflation that exceeds the growth rate of money for a country could be explained by:

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:

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?

People have a portfolio demand for money in part because:

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

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

A major contributing factor to the instability of money demand over the past 25 years is the:

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

A decline in the yields earned by bonds should:

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.

Using the equation of exchange, if inflation is 1.5%, real output grows by 3.0%, and the growth rate of money is 5.0%, the change in the velocity of money is:

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

To say that the relationship between the velocity of money and the opportunity cost of holding money is not stable is the same as saying:

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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