Question 1

As a person's wealth increases we would expect the demand for money to:

Accepted Answer

A) Decrease 
B) Increase dollar for dollar with wealth 
C) Increase but at a rate less than dollar for dollar 
D) Not change; money demand does not vary with wealth, only with income 
A) Decrease 
B) Increase dollar for dollar with wealth 
C) Increase but at a rate less than dollar for dollar 
D) Not change; money demand does not vary with wealth, only with income

Question 2

Statistical analysis reveals that the long-run money velocity (for euro-area M3, which is equivalent to U.S.M2):

Accepted Answer

A) Is unstable in the euro similar to the instability that exists in the U.S. 
B) Is much more stable in the U.S.than in the euro area 
C) Has increased in the euro area since 1980 
D) Is more stable in the euro area than in the U.S. 
A) Is unstable in the euro similar to the instability that exists in the U.S. 
B) Is much more stable in the U.S.than in the euro area 
C) Has increased in the euro area since 1980 
D) Is more stable in the euro area than in the U.S.

Question 3

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 4

If we consider the relationship between the opportunity cost of holding money and velocity that existed in the 1980s, if the Fed followed the same policymaking in the 1990s, would they have achieved the desired results? Explain.

Accepted Answer

Likely not.In the 1990s the sensitivity

Question 5

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 x M)/P 
B) (P x M)/Y 
C) (P x Y)/M 
D) (P x Y) +M 
A) (Y x M)/P 
B) (P x M)/Y 
C) (P x Y)/M 
D) (P x Y) +M

Question 6

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 7

If velocity of money is constant; real growth in the output of the economy is +2.5%; and inflation is 2.0%; what is the growth rate of money?

Accepted Answer

Here we can employ the percent

Question 8

One cost that potentially could result from central banks targeting money growth is:

Accepted Answer

A) High inflation 
B) A slowdown in financial innovation 
C) Volatile interest rates 
D) Decreased independence 
A) High inflation 
B) A slowdown in financial innovation 
C) Volatile interest rates 
D) Decreased independence

Question 9

Empirical research has shown that:

Accepted Answer

A) In the 1990s, velocity was more sensitive to an increase in the opportunity cost of holding money than in the 1980s 
B) In the 1990s, velocity was less sensitive to an increase in the opportunity cost of holding money than in the 1980s 
C) During the 1980s and 1990s, the velocity of money was not sensitive to changes in the opportunity cost of holding money 
D) During the 1980s and 1990s, the velocity of money actually decreased as the opportunity cost of holding money increased 
A) In the 1990s, velocity was more sensitive to an increase in the opportunity cost of holding money than in the 1980s 
B) In the 1990s, velocity was less sensitive to an increase in the opportunity cost of holding money than in the 1980s 
C) During the 1980s and 1990s, the velocity of money was not sensitive to changes in the opportunity cost of holding money 
D) During the 1980s and 1990s, the velocity of money actually decreased as the opportunity cost of holding money increased

Question 10

The relationship between the velocity of money and interest rates is:

Accepted Answer

A) Positive but not stable 
B) Negative but not stable 
C) Positive and stable 
D) Negative and stable 
A) Positive but not stable 
B) Negative but not stable 
C) Positive and stable 
D) Negative and stable

Question 11

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 12

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 13

Which of the following statements is most correct?

Accepted Answer

A) The velocity of M2 is relatively stable across all time periods 
B) The velocity of M2 is less stable than the velocity of M1 
C) The velocity of M2 is more volatile in the short run than the long run 
D) Fisher's assumption about money velocity being stable in the long run was incorrect 
A) The velocity of M2 is relatively stable across all time periods 
B) The velocity of M2 is less stable than the velocity of M1 
C) The velocity of M2 is more volatile in the short run than the long run 
D) Fisher's assumption about money velocity being stable in the long run was incorrect

Question 14

Key assumptions behind the quantity theory of money include:

Accepted Answer

A) The money supply is fixed 
B) The velocity of money is constant 
C) The percentage change in the price level equals the percentage change in real GDP 
D) The change in nominal GDP is zero 
A) The money supply is fixed 
B) The velocity of money is constant 
C) The percentage change in the price level equals the percentage change in real GDP 
D) The change in nominal GDP is zero

Question 15

The velocity of money increases if:

Accepted Answer

A) Each unit of money is used more frequently 
B) Each unit of money is used less frequently 
C) More purchases are made 
D) None of the above answers is correct; the velocity of money is constant 
A) Each unit of money is used more frequently 
B) Each unit of money is used less frequently 
C) More purchases are made 
D) None of the above answers is correct; the velocity of money is constant

Question 16

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 17

In the late 1970s and early 1980s, the velocity of money increased significantly.The main reason(s) for the increase was:

Accepted Answer

A) As presidential election years near the velocity of money increases 
B) The introduction of stock and bond mutual funds with draft writing privileges and low nominal interest rates 
C) High nominal interest rates 
D) The introduction of stock and bond mutual funds with draft writing privileges along with high nominal interest rates 
A) As presidential election years near the velocity of money increases 
B) The introduction of stock and bond mutual funds with draft writing privileges and low nominal interest rates 
C) High nominal interest rates 
D) The introduction of stock and bond mutual funds with draft writing privileges along with high nominal interest rates

Question 18

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 19

Which of the following would reflect the transactions demand for money?

Accepted Answer

A) Keeping funds in your checking account to pay your rent 
B) Keeping funds in your savings account because the interest rate looks relatively attractive 
C) Selling common stocks you own and increasing the money in your savings account because you think stock prices will fall soon 
D) Buying a U.S.Treasury security using funds from your checking account 
A) Keeping funds in your checking account to pay your rent 
B) Keeping funds in your savings account because the interest rate looks relatively attractive 
C) Selling common stocks you own and increasing the money in your savings account because you think stock prices will fall soon 
D) Buying a U.S.Treasury security using funds from your checking account

Question 20

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

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

As a person's wealth increases we would expect the demand for money to:

Statistical analysis reveals that the long-run money velocity (for euro-area M3, which is equivalent to U.S.M2):

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

If we consider the relationship between the opportunity cost of holding money and velocity that existed in the 1980s, if the Fed followed the same policymaking in the 1990s, would they have achieved the desired results? Explain.

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

Which of the following expresses the equation of exchange?

If velocity of money is constant; real growth in the output of the economy is +2.5%; and inflation is 2.0%; what is the growth rate of money?

One cost that potentially could result from central banks targeting money growth is:

Empirical research has shown that:

The relationship between the velocity of money and interest rates is:

The velocity of money equals:

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?

Which of the following statements is most correct?

Key assumptions behind the quantity theory of money include:

The velocity of money increases if:

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?

In the late 1970s and early 1980s, the velocity of money increased significantly.The main reason(s) for the increase was:

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

Which of the following would reflect the transactions demand for money?

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

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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