Question 1

Keynes argued that the precautionary component of the demand for money was primarily determined by the level of people's ________, which he believed were proportional to ________.

Accepted Answer

A)   incomes; wealth
B)   incomes; age
C)   transactions; income
D)   transactions; age

Question 2

Baumol and Tobin developed monetary models that showed ________.

Accepted Answer

A)   money balances held for transaction purposes are sensitive to the level of interest rates
B)   money balances held for speculative purposes are sensitive to the level of interest rates
C)   money balances held for transaction purposes are not sensitive to the level of interest rates
D)   money balances held for wealth purposes are sensitive to the level of interest rates

Question 3

If the money supply is $20 trillion and velocity is 2, then nominal GDP is ________.

Accepted Answer

A)   $2 trillion
B)   $10 trillion
C)   $20 trillion
D)   $40 trillion

Question 4

Inflation hedges ________.

Accepted Answer

A)   have real returns that are less affected by inflation
B)   increase the risk and return from holding currency
C)   exhibit zero return
D)   are denominated in nominal terms

Question 5

Explain the transactions motive for holding money in Keynes's liquidity preference theory.

Accepted Answer

Following the classical approach, Keynes emphasized that the transactions component of the demand for money is determined primarily by the level of people's transactions. Because he believed that these transactions were proportional to income, like the classical economists he took the transactions component of the demand for money to be proportional to income.

Question 6

The theory of portfolio choice says that the demand for an asset is ________ related to ________.

Accepted Answer

A)   positively; wealth
B)   negatively; expected return
C)   negatively; wealth
D)   positively; risk.

Question 7

Which events created the perfect storm for the Canadian economy in 2007-2008?

Accepted Answer

A)   An oil price shock and the global financial crisis.
B)   Housing prices had doubled in most major metropolitan areas.
C)   Prime mortgage interest rates were rising.
D)   All of the above.

Question 8

Describe the factors that affect the demand for money.

Accepted Answer

The demand for money using Keynesian and...

Question 9

The Tobin mean-variance analysis of money demand is an application of ________.

Accepted Answer

A)   the theory of portfolio choice
B)   the equation of exchange
C)   a variance-at-risk model
D)   A and C only

Question 10

For the classical economists, the quantity theory of money provided an explanation of movements in the price level. Movements in the price level result ________.

Accepted Answer

A)   solely from changes in the quantity of money
B)   primarily from changes in the quantity of money
C)   only partially from changes in the quantity of money
D)   from changes in factors other than the quantity of money

Question 11

Keynes argued that when interest rates were low relative to some normal value, people would expect bond prices to ________ so the quantity of money demanded would ________.

Accepted Answer

A)   increase; increase
B)   increase; decrease
C)   decrease; increase
D)   decrease; decrease

Question 12

If people expect nominal interest rates to be higher in the future, the expected return on bonds ________, and the demand for money ________.

Accepted Answer

A)   rises; increases
B)   rises; decreases
C)   falls; increases
D)   falls; decreases C

Question 13

Budget deficits can be an important source of ________ monetary policy.

Accepted Answer

A)   inflationary
B)   recessionary
C)   federal
D)   fiscal

Question 14

In a liquidity trap, monetary policy has ________ effect on aggregate spending because a change in the money supply has ________ effect on interest rates.

Accepted Answer

A)   no; no
B)   no; a large
C)   no; a small
D)   a large; a large

Question 15

The view that velocity is constant in the short run transforms the equation of exchange into the quantity theory of money. According to the quantity theory of money, when the money supply doubles ________.

Accepted Answer

A)   velocity falls by 50 percent
B)   velocity doubles
C)   nominal incomes falls by 50 percent
D)   nominal income doubles D

Question 16

The speculative motive for holding money is closely tied to what function of money?

Accepted Answer

A)   Store of wealth
B)   Unit of account
C)   Medium of exchange
D)   Standard of deferred payment

Question 17

If initially the money supply is $1 trillion, velocity is 5, the price level is 1, and real GDP is $5 trillion, an increase in the money supply to $2 trillion ________.

Accepted Answer

A)   increases real GDP to $10 trillion
B)   causes velocity to fall to 2.5
C)   increases the price level to 2
D)   increases the price level to 2 and velocity to 10

Question 18

Currency and chequable deposits are said to be ________.

Accepted Answer

A)   dominated assets
B)   risky assets
C)   interest bearing
D)   income

Question 19

The demand for money as a cushion against unexpected contingencies is called the ________.

Accepted Answer

A)   transactions motive
B)   precautionary motive
C)   insurance motive
D)   speculative motive

Question 20

Evidence suggests that a liquidity trap is possible when ________.

Accepted Answer

A)   real interest rates are at zero
B)   real interest rates are at or just above zero
C)   nominal interest rates are at zero
D)   nominal interest rates are at or just above zero

Exam 20: Quantity Theory, Inflation, and the Demand for Money

Keynes argued that the precautionary component of the demand for money was primarily determined by the level of people's , which he believed were proportional to .

Correct Answer
verified

Baumol and Tobin developed monetary models that showed ________.

Correct Answer
verified

If the money supply is $20 trillion and velocity is 2, then nominal GDP is ________.

Correct Answer
verified

Inflation hedges ________.

Correct Answer
verified

Explain the transactions motive for holding money in Keynes's liquidity preference theory.

The theory of portfolio choice says that the demand for an asset is related to .

Correct Answer
verified

Which events created the perfect storm for the Canadian economy in 2007-2008?

Correct Answer
verified

Describe the factors that affect the demand for money.

Correct Answer
verified
The demand for money using Keynesian and...
View Answer

The Tobin mean-variance analysis of money demand is an application of ________.

Correct Answer
verified

For the classical economists, the quantity theory of money provided an explanation of movements in the price level. Movements in the price level result ________.

Correct Answer
verified

Keynes argued that when interest rates were low relative to some normal value, people would expect bond prices to so the quantity of money demanded would .

Correct Answer
verified

If people expect nominal interest rates to be higher in the future, the expected return on bonds , and the demand for money .

Correct Answer
verified
C

Budget deficits can be an important source of ________ monetary policy.

Correct Answer
verified

In a liquidity trap, monetary policy has effect on aggregate spending because a change in the money supply has effect on interest rates.

Correct Answer
verified

The view that velocity is constant in the short run transforms the equation of exchange into the quantity theory of money. According to the quantity theory of money, when the money supply doubles ________.

Correct Answer
verified
D

The speculative motive for holding money is closely tied to what function of money?

Correct Answer
verified

If initially the money supply is $1 trillion, velocity is 5, the price level is 1, and real GDP is $5 trillion, an increase in the money supply to $2 trillion ________.

Correct Answer
verified

Currency and chequable deposits are said to be ________.

Correct Answer
verified

The demand for money as a cushion against unexpected contingencies is called the ________.

Correct Answer
verified

Evidence suggests that a liquidity trap is possible when ________.

Correct Answer
verified

Exam 20: Quantity Theory, Inflation, and the Demand for Money

Keynes argued that the precautionary component of the demand for money was primarily determined by the level of people's ________, which he believed were proportional to ________.

Correct AnswerverifiedShow Answer

Baumol and Tobin developed monetary models that showed ________.

Correct AnswerverifiedShow Answer

If the money supply is $20 trillion and velocity is 2, then nominal GDP is ________.

Correct AnswerverifiedShow Answer

Inflation hedges ________.

Correct AnswerverifiedShow Answer

Explain the transactions motive for holding money in Keynes's liquidity preference theory.

The theory of portfolio choice says that the demand for an asset is ________ related to ________.

Correct AnswerverifiedShow Answer

Which events created the perfect storm for the Canadian economy in 2007-2008?

Correct AnswerverifiedShow Answer

Describe the factors that affect the demand for money.

Correct AnswerverifiedThe demand for money using Keynesian and...View AnswerShow Answer

The Tobin mean-variance analysis of money demand is an application of ________.

Correct AnswerverifiedShow Answer

For the classical economists, the quantity theory of money provided an explanation of movements in the price level. Movements in the price level result ________.

Correct AnswerverifiedShow Answer

Keynes argued that when interest rates were low relative to some normal value, people would expect bond prices to ________ so the quantity of money demanded would ________.

Correct AnswerverifiedShow Answer

If people expect nominal interest rates to be higher in the future, the expected return on bonds ________, and the demand for money ________.

Correct AnswerverifiedC

Budget deficits can be an important source of ________ monetary policy.

Correct AnswerverifiedShow Answer

In a liquidity trap, monetary policy has ________ effect on aggregate spending because a change in the money supply has ________ effect on interest rates.

Correct AnswerverifiedShow Answer

The view that velocity is constant in the short run transforms the equation of exchange into the quantity theory of money. According to the quantity theory of money, when the money supply doubles ________.

Correct AnswerverifiedD

The speculative motive for holding money is closely tied to what function of money?

Correct AnswerverifiedShow Answer

If initially the money supply is $1 trillion, velocity is 5, the price level is 1, and real GDP is $5 trillion, an increase in the money supply to $2 trillion ________.

Correct AnswerverifiedShow Answer

Currency and chequable deposits are said to be ________.

Correct AnswerverifiedShow Answer

The demand for money as a cushion against unexpected contingencies is called the ________.

Correct AnswerverifiedShow Answer

Evidence suggests that a liquidity trap is possible when ________.

Correct AnswerverifiedShow Answer

Keynes argued that the precautionary component of the demand for money was primarily determined by the level of people's , which he believed were proportional to .

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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The theory of portfolio choice says that the demand for an asset is related to .

Correct Answer
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Correct Answer
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Correct Answer
verified
The demand for money using Keynesian and...
View Answer

Correct Answer
verified

Correct Answer
verified

Keynes argued that when interest rates were low relative to some normal value, people would expect bond prices to so the quantity of money demanded would .

Correct Answer
verified

If people expect nominal interest rates to be higher in the future, the expected return on bonds , and the demand for money .

Correct Answer
verified
C

Correct Answer
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In a liquidity trap, monetary policy has effect on aggregate spending because a change in the money supply has effect on interest rates.

Correct Answer
verified

Correct Answer
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D

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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