Question 1

Empirical research has shown that:

Accepted Answer

A) in the 1990s and 2000s, velocity was more sensitive to an increase in the opportunity cost of holding money than in the 1980s. 
B) in the 1990s and 2000s, 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 2

If M2 is four times larger than M1, the velocity of M1 should be:

Accepted Answer

A) one-fourth of the velocity of M2. 
B) equal to the velocity of M2. 
C) equal to four. 
D) four times larger than the velocity of M2.

Question 3

During the period of October 1979 to October 1982; the FOMC's primary operating target resulted in:

Accepted Answer

A) the most stable period for the federal funds rate in history. 
B) reserves being highly volatile. 
C) the federal funds rate experiencing high volatility. 
D) the federal funds rate dropping to 2 percent (an all-time low to that date) and not rising above 3 percent.

Question 4

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

The answer of If velocity of money is constant; real...

Question 5

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.

Question 6

History shows 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.

Question 7

Which of the following would be classified as precautionary demand for money?

Accepted Answer

A) You keep a $1000 in a money market account because the return is better than a savings account at your bank 
B) You apply for and receive a credit card with a $1000 limit 
C) You put $1000 in a savings account at your bank for emergencies 
D) You put $1000 in your checking account each month to cover your regular expenses

Question 8

Consider the following ratio: the average annual inflation rate/the average annual money growth rate.If a country's rate of money growth consistently exceeds the rate of inflation the ratio would be:

Accepted Answer

A) less than one. 
B) greater than one. 
C) that is infinite. 
D) exactly one.

Question 9

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

Accepted Answer

The answer of What factors can cause the portfolio demand...

Question 10

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 and 2000s, would they have achieved the desired results? Explain.

Accepted Answer

The answer of If we consider the relationship between the...

Question 11

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.

Question 12

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 answer of If the correlation between the rate of...

Question 13

The quantity theory of money can explain which of the following?

Accepted Answer

A) If the %ΔY > 0 and the %ΔV = 0; the %ΔP  %ΔM 
D) If the %ΔP > 0; the %ΔM must also be > 0

Question 14

The equation of exchange which is MV = PY is an identity, which means it is true by 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

The answer of The equation of exchange which is MV...

Question 15

If we consider the quantity theory of money and Professor Irving Fisher, who did a lot of his work in the early 20^th century, why might Professor Fisher feel less confident about predicting constant velocity of money today than when he did his work?

Accepted Answer

The answer of If we consider the quantity theory of...

Question 16

If the nominal interest rate decreases:

Accepted Answer

A) the cost of holding money decreases. 
B) the cost of holding money increases. 
C) the velocity of money should increase. 
D) the cost of holding money increases and the velocity of money should decrease.

Question 17

If we let Md reflect money demand, then we can write the equation for money demand as:

Accepted Answer

A) Md = VY. 
B) Md = PY. 
C) Md = (1/V) PY. 
D) Md = V(Y/P).

Question 18

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.

Question 19

If on average, a dollar is spent 4 times each year to purchase real output, the velocity of money is:

Accepted Answer

A) one-fourth. 
B) four. 
C) the money supply divided by 4. 
D) nominal GDP divided by four.

Question 20

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.

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

Empirical research has shown that:

If M2 is four times larger than M1, the velocity of M1 should be:

During the period of October 1979 to October 1982; the FOMC's primary operating target resulted in:

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?

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

History shows that:

Which of the following would be classified as precautionary demand for money?

Consider the following ratio: the average annual inflation rate/the average annual money growth rate.If a country's rate of money growth consistently exceeds the rate of inflation the ratio would be:

What factors can cause the portfolio demand for money to 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 and 2000s, would they have achieved the desired results? Explain.

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

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.

The quantity theory of money can explain which of the following?

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

If we consider the quantity theory of money and Professor Irving Fisher, who did a lot of his work in the early 20^th century, why might Professor Fisher feel less confident about predicting constant velocity of money today than when he did his work?

If the nominal interest rate decreases:

If we let M_d reflect money demand, then we can write the equation for money demand as:

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

If on average, a dollar is spent 4 times each year to purchase real output, the velocity of money is:

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

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

Empirical research has shown that:

If M2 is four times larger than M1, the velocity of M1 should be:

During the period of October 1979 to October 1982; the FOMC's primary operating target resulted in:

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?

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

History shows that:

Which of the following would be classified as precautionary demand for money?

Consider the following ratio: the average annual inflation rate/the average annual money growth rate.If a country's rate of money growth consistently exceeds the rate of inflation the ratio would be:

What factors can cause the portfolio demand for money to 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 and 2000s, would they have achieved the desired results? Explain.

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

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.

The quantity theory of money can explain which of the following?

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

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?

If the nominal interest rate decreases:

If we let Md reflect money demand, then we can write the equation for money demand as:

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

If on average, a dollar is spent 4 times each year to purchase real output, the velocity of money is:

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

If we consider the quantity theory of money and Professor Irving Fisher, who did a lot of his work in the early 20^th century, why might Professor Fisher feel less confident about predicting constant velocity of money today than when he did his work?

If we let M_d reflect money demand, then we can write the equation for money demand as: