Question 1

Over the long run if central banks want to avoid high rates of inflation, they need to be concerned with the:

Accepted Answer

A) Unemployment rate 
B) Money growth rate 
C) Real economic growth rate 
D) Productivity of labor 
A) Unemployment rate 
B) Money growth rate 
C) Real economic growth rate 
D) Productivity of labor

Question 2

If a central bank sets an explicit inflation target, the central bank must:

Accepted Answer

A) Put more emphasis on the interest rate target and less on a money target 
B) Shift its focus entirely to a nominal interest rate target 
C) Give up control of targeting the monetary base 
D) Be willing to live with more volatility in the interest rate 
A) Put more emphasis on the interest rate target and less on a money target 
B) Shift its focus entirely to a nominal interest rate target 
C) Give up control of targeting the monetary base 
D) Be willing to live with more volatility in the interest rate

Question 3

If an investor thinks interest rates are likely to rise, she would:

Accepted Answer

A) Sell her bonds and hold more money 
B) Buy more bonds now and hold less money 
C) Not alter her bond portfolio until interest rates actually rise 
D) Not change her money holdings at all 
A) Sell her bonds and hold more money 
B) Buy more bonds now and hold less money 
C) Not alter her bond portfolio until interest rates actually rise 
D) Not change her money holdings at all

Question 4

The equation of exchange which is MV = PY is an identity, which means it is true be definition.If you think carefully, what variable in the equation by the way it is defined really makes the equation of exchange an identity?

Accepted Answer

It is the velocity of money.It

Question 5

How does money velocity contribute to the observation that in countries with high rates of inflation, the inflation rate exceeds the rate of money growth?

Accepted Answer

Inflation contributes to high velocity i

Question 6

The demand for money varies:

Accepted Answer

A) Directly with the liquidity of other financial assets 
B) Inversely with the liquidity of other financial assets 
C) Not all with the liquidity of other assets since money is liquid 
D) Inversely with wealth 
E) BLOOM'S: Remember 
A) Directly with the liquidity of other financial assets 
B) Inversely with the liquidity of other financial assets 
C) Not all with the liquidity of other assets since money is liquid 
D) Inversely with wealth 
E) BLOOM'S: Remember

Question 7

If money growth and real output growth are both zero, the change in the price level will:

Accepted Answer

A) Also be zero 
B) Equal the percentage change in velocity 
C) Be indeterminate 
D) Be the inverse of the percentage change in velocity 
A) Also be zero 
B) Equal the percentage change in velocity 
C) Be indeterminate 
D) Be the inverse of the percentage change in velocity

Question 8

In the late 1990s, the financial crises that spread through the financial markets found people:

Accepted Answer

A) Holding less money 
B) Increasing their holdings of bonds 
C) Holding more money 
D) Holding less money and increasing their holdings of bonds 
A) Holding less money 
B) Increasing their holdings of bonds 
C) Holding more money 
D) Holding less money and increasing their holdings of bonds

Question 9

Which of the following statements is most correct?

Accepted Answer

A) The current rate of inflation is the result of money growth 
B) Money growth is the result of inflation 
C) There is no clear link between high, sustained inflation and the monetary aggregates 
D) It is impossible to have high, sustained inflation without monetary accommodation 
A) The current rate of inflation is the result of money growth 
B) Money growth is the result of inflation 
C) There is no clear link between high, sustained inflation and the monetary aggregates 
D) It is impossible to have high, sustained inflation without monetary accommodation

Question 10

Using the equation of exchange, if inflation is 1%, the velocity of money grows by 1.0% and the growth rate of money is 3.0%; what is real growth?

Accepted Answer

A) +3.0% 
B) 1% 
C) 4.0% 
D) -1.0% 
A) +3.0% 
B) 1% 
C) 4.0% 
D) -1.0%

Question 11

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 12

Money held for precautionary reasons is included in the demand for money:

Accepted Answer

A) As a third, separate category called the precautionary demand for money 
B) As part of transactions demand 
C) As part of portfolio demand 
D) Partly as transactions demand and partly as portfolio demand 
A) As a third, separate category called the precautionary demand for money 
B) As part of transactions demand 
C) As part of portfolio demand 
D) Partly as transactions demand and partly as portfolio demand

Question 13

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 14

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

Accepted Answer

A) Believe there is some stable link between the monetary base and the money aggregates 
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 some stable link between the monetary base and the money aggregates 
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 15

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

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 should

Question 17

Economists are fond of calculating measures of elasticity.If we calculate the income elasticity of money as the %$\Delta$M/%$\Delta$PY, where M is the quantity of money held and PY is nominal income, would you suspect the coefficient to be positive, negative or zero? Will the absolute value be greater or less than 1? Be sure to explain your choices.

Accepted Answer

First, we should see a positive elastici

Question 18

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 19

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 20

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

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

Over the long run if central banks want to avoid high rates of inflation, they need to be concerned with the:

If a central bank sets an explicit inflation target, the central bank must:

If an investor thinks interest rates are likely to rise, she would:

The equation of exchange which is MV = PY is an identity, which means it is true be definition.If you think carefully, what variable in the equation by the way it is defined really makes the equation of exchange an identity?

How does money velocity contribute to the observation that in countries with high rates of inflation, the inflation rate exceeds the rate of money growth?

The demand for money varies:

If money growth and real output growth are both zero, the change in the price level will:

In the late 1990s, the financial crises that spread through the financial markets found people:

Which of the following statements is most correct?

Using the equation of exchange, if inflation is 1%, the velocity of money grows by 1.0% and the growth rate of money is 3.0%; what is real growth?

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?

Money held for precautionary reasons is included in the 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?

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

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

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?

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

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:

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

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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