Question 1

The fact that people can write drafts (checks) from many stock and money market accounts has:

Accepted Answer

A) Increased the transactions demand for money 
B) Decreased the transactions demand for money 
C) Not affected the transactions demand for money 
D) Increased the cost of converting non-money assets to a means of payment 
A) Increased the transactions demand for money 
B) Decreased the transactions demand for money 
C) Not affected the transactions demand for money 
D) Increased the cost of converting non-money assets to a means of payment

Question 2

Between 1970 and 2000, if the Fed had tried to hit the money growth targets:

Accepted Answer

A) The economy would have likely experienced very high inflation 
B) The federal funds rate would have changed often and by large amounts 
C) The interest rates would have likely been more stable 
D) The economy would have likely experienced very high inflation but the interest rates would have likely been more stable 
A) The economy would have likely experienced very high inflation 
B) The federal funds rate would have changed often and by large amounts 
C) The interest rates would have likely been more stable 
D) The economy would have likely experienced very high inflation but the interest rates would have likely been more stable

Question 3

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

Question 4

The European Central Bank (ECB) still announces a money growth target, while the Fed does not.Why is it the ECB still feels it can announce this target while the Fed gave up on targeting money aggregates?

Accepted Answer

The answer is found on how policymakers

Question 5

The CPI is a commonly used and closely watched measure of inflation.However, it has limitations.What are they?

Accepted Answer

Economists maintain that the CPI, which

Question 6

In high inflation countries, inflation rates can exceed the rate of growth of money because:

Accepted Answer

A) High inflation increases the velocity of money 
B) High rates of inflation increase the opportunity cost of holding money 
C) Money loses value quickly with inflation 
D) All of the answers given are correct 
A) High inflation increases the velocity of money 
B) High rates of inflation increase the opportunity cost of holding money 
C) Money loses value quickly with inflation 
D) All of the answers given are correct

Question 7

The quantity theory of money along with the assumption of a constant velocity can explain which of the following?

Accepted Answer

A) At a given level of money growth, the higher the level of real growth the higher the level of inflation will be 
B) At a given level of money growth, the higher the level of real growth the lower the level of inflation will be 
C) If real growth is higher than money growth the price level must be rising 
D) If real growth equals money growth, the price level is falling 
A) At a given level of money growth, the higher the level of real growth the higher the level of inflation will be 
B) At a given level of money growth, the higher the level of real growth the lower the level of inflation will be 
C) If real growth is higher than money growth the price level must be rising 
D) If real growth equals money growth, the price level is falling

Question 8

A cause of the decline in the velocity of money during the 2007-2009 financial crisis was a result of:

Accepted Answer

A) the fiscal stimulus provided by the US government 
B) the lowering of the discount rate by the Fed 
C) the use of unconventional policy tools by the Fed 
D) an increase in uncertainty 
A) the fiscal stimulus provided by the US government 
B) the lowering of the discount rate by the Fed 
C) the use of unconventional policy tools by the Fed 
D) an increase in uncertainty

Question 9

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 10

During economic slowdowns (recessions) the velocity of money tends to:

Accepted Answer

A) Remain relatively stable 
B) Increase slightly 
C) Increase dramatically 
D) Decrease 
A) Remain relatively stable 
B) Increase slightly 
C) Increase dramatically 
D) Decrease

Question 11

If the equation of exchange is MV = PY the Y represents:

Accepted Answer

A) Nominal GDP 
B) Real GDP 
C) Potential output 
D) Economic growth 
A) Nominal GDP 
B) Real GDP 
C) Potential output 
D) Economic growth

Question 12

Could central banks target money growth to the point of keeping the growth rate constant? If so, what would be the cost of pursuing this policy objective?

Accepted Answer

central banks likely could target the gr

Question 13

Is variability in velocity more of a problem in high or low inflation countries? Explain.

Accepted Answer

In countries where inflation and money g

Question 14

If the Fed wanted to target price stability, meaning zero inflation, why should it set a target rate of inflation of around one percent?

Accepted Answer

Economists maintain that the CPI, which

Question 15

Why do people hold money? Explain the reasons.

Accepted Answer

First, people hold money in order to pay

Question 16

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 17

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

Accepted Answer

A) +1.0% 
B) It is constant or a 0% change 
C) It is the same as the growth rate of money, or 3.0% 
D) -1.0% 
A) +1.0% 
B) It is constant or a 0% change 
C) It is the same as the growth rate of money, or 3.0% 
D) -1.0%

Question 18

In May of 2003, the European Central Bank (ECB) decided to:

Accepted Answer

A) Focus almost exclusively on money growth as their target 
B) Downgrade the role of money growth in their policymaking strategy 
C) Limit the role of interest rate targeting to be second in importance to money growth targeting 
D) Switch from an inflation target to a money growth target 
A) Focus almost exclusively on money growth as their target 
B) Downgrade the role of money growth in their policymaking strategy 
C) Limit the role of interest rate targeting to be second in importance to money growth targeting 
D) Switch from an inflation target to a money growth target

Question 19

Assuming a constant nominal GDP, would the velocity of M1 equal the velocity of M2? Explain.

Accepted Answer

No, the velocity of M1 would be greater

Question 20

The Lucas critique focuses specifically on:

Accepted Answer

A) The relationship between Fed policy and the money supply 
B) The role that economic policymaking has on people's economic behavior 
C) The inability to measure economic performance accurately 
D) The moving away from fixed exchange rates to flexible exchange rates 
A) The relationship between Fed policy and the money supply 
B) The role that economic policymaking has on people's economic behavior 
C) The inability to measure economic performance accurately 
D) The moving away from fixed exchange rates to flexible exchange rates

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

The fact that people can write drafts (checks) from many stock and money market accounts has:

Between 1970 and 2000, if the Fed had tried to hit the money growth targets:

The portfolio demand for money reflects:

The European Central Bank (ECB) still announces a money growth target, while the Fed does not.Why is it the ECB still feels it can announce this target while the Fed gave up on targeting money aggregates?

The CPI is a commonly used and closely watched measure of inflation.However, it has limitations.What are they?

In high inflation countries, inflation rates can exceed the rate of growth of money because:

The quantity theory of money along with the assumption of a constant velocity can explain which of the following?

A cause of the decline in the velocity of money during the 2007-2009 financial crisis was a result of:

Which of the following statements is true?

During economic slowdowns (recessions) the velocity of money tends to:

If the equation of exchange is MV = PY the Y represents:

Could central banks target money growth to the point of keeping the growth rate constant? If so, what would be the cost of pursuing this policy objective?

Is variability in velocity more of a problem in high or low inflation countries? Explain.

If the Fed wanted to target price stability, meaning zero inflation, why should it set a target rate of inflation of around one percent?

Why do people hold money? Explain the reasons.

The higher the nominal interest rate:

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

In May of 2003, the European Central Bank (ECB) decided to:

Assuming a constant nominal GDP, would the velocity of M1 equal the velocity of M2? Explain.

The Lucas critique focuses specifically on:

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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