Exam 23: The Demand for Money

A) $106.
B) $200.
C) $600.
D) $1200.

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A) did not apply to money in its role as a medium of exchange.
B) failed to explain completely actual changes in real money balances.
C) assumed that prices did not change.
D) assumed that the stock of money did not change.

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A) the demand for M1 balances increased substantially.
B) the demand for M1 balances decreased substantially.
C) the dollar value of M1 became greater than the dollar value of M2.
D) the nominal return on M1 balances declined.

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Transactions are much larger than income...

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A) have increased by 50%.
B) have decreased by 50%.
C) have increased by 100%.
D) be unchanged.

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A) economic agents do not adjust their money holdings in the face of interest rate fluctuations.
B) economic agents trade off the benefits of holding money against the cost of interest foregone from holding bonds.
C) the quantity of money demanded will rise only if the interest rate rises.
D) the quantity of money demanded will rise only if the interest rate falls.

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A) Movements in interest rates
B) Exchange rate fluctuations
C) Changes in marginal tax rates
D) Political instability in Eastern Europe

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A) its function as a medium of exchange.
B) its function as a store of value.
C) its function as a means of deferred payment.
D) gold and silver coins.

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A) stopped targeting M1 growth, but continued to target M2 growth.
B) stopped targeting M2 growth, but continued to target M1 growth.
C) stopped targeting either M1 or M2 growth.
D) continued to target both M1 and M2 growth.

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A) have increased by 25%.
B) have decreased by 25%.
C) have increased by 100%.
D) have decreased by 100%.

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A) holds better for some periods of time in the United States than for other periods of time.
B) holds better for certain countries than for other countries.
C) is an identity and therefore always holds.
D) has been disproved by modern economic analysis.

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A) central banks sometimes need to lean against asset bubbles.
B) central banks need to pay close attention to money supply growth.
C) .inflation is primarily determined by money supply growth in the long run
D) models should no longer include money when trying to understand macroeconomic behavior.

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A) buy bonds.
B) buy houses and consumer durable goods.
C) increase their nominal balances.
D) increase their real balances.

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A) increase when output increases, but decrease when the interest rate increases.
B) decrease when output increases, but increase when the interest rate increases.
C) increase when output or the interest rate increases.
D) decrease when output or the interest rate increases.

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A) are rare and their effect on money demand can usually be ignored.
B) usually result in an increase in money demand.
C) are hard to incorporate into empirical money demand functions.
D) cause interest rates to rise, if everything else is held constant.

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A) were explored by Irving Fisher.
B) are usually considered to be negligible by modern economists.
C) are of importance only during recessions.
D) were explored by William Baumol and James Tobin.

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A) PY/M.
B) M/PY.
C) MP/Y.
D) MY/P.

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A) currency.
B) checkable deposits.
C) M1.
D) M2.

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