Question 1

In the early 1990s,M2 growth underwent a dramatic ________,which some researchers believe ________ be explained by traditional money demand functions.

Accepted Answer

A)   surge; cannot
B)   surge; can
C)   slowdown; cannot
D)   slowdown; can

Question 2

The velocity of money is defined as

Accepted Answer

A)   real GDP divided by the money supply.
B)   nominal GDP divided by the money supply.
C)   real GDP times the money supply.
D)   nominal GDP times the money supply.

Question 3

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 4

The equation of exchange is

Accepted Answer

A)   M × P = V × Y.
B)   M + V = P + Y.
C)   M + Y = V + P.
D)   M × V = P × Y.

Question 5

The Keynesian theory of money demand emphasizes the importance of

Accepted Answer

A)   a constant velocity.
B)   irrational behavior on the part of some economic agents.
C)   interest rates on the demand for money.
D)   expectations.

Question 6

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.

Question 7

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 8

Keynes's liquidity preference theory indicates that the demand for money is ________ related to ________.

Accepted Answer

A)   negatively; interest rates
B)   positively; interest rates
C)   negatively; income
D)   negatively; wealth

Question 9

Only when budget deficits are financed by money creation does the increased government spending lead to ________ in the ________.

Accepted Answer

A)   a decrease; monetary base
B)   an increase; monetary base
C)   a decrease; money multiplier
D)   an increase; money multiplier

Question 10

The quantity theory of inflation indicates that the inflation rate equals

Accepted Answer

A)   the growth rate of the money supply minus the growth rate of aggregate output.
B)   the level of the money supply minus the level of aggregate output.
C)   the growth rate of the money supply plus the growth rate of aggregate output.
D)   the level of the money supply plus the level of aggregate output.

Question 11

Irving Fisher's view that velocity is fairly constant in the short run transforms the equation of exchange into the

Accepted Answer

A)   Friedman's theory of income determination.
B)   quantity theory of money.
C)   Keynesian theory of income determination.
D)   monetary theory of income determination.

Question 12

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 13

The equation of exchange states that the quantity of money multiplied by the number of times this money is spent in a given year must equal

Accepted Answer

A)   nominal income.
B)   real income.
C)   real gross national product.
D)   velocity.

Question 14

The theory of portfolio choice indicates that factors affecting the demand for money include

Accepted Answer

A)   income.
B)   nominal interest rate.
C)   liquidity of other assets.
D)   all the above.

Question 15

The theory of portfolio choice indicates that higher interest rates make money ________ desirable,and the demand for real money balances ________.

Accepted Answer

A)   less; falls
B)   more; falls
C)   less; rises
D)   more; rises

Question 16

The velocity of money is

Accepted Answer

A)   the average number of times that a dollar is spent in buying the total amount of final goods and services.
B)   the ratio of the money stock to high-powered money.
C)   the ratio of the money stock to interest rates.
D)   the average number of times a dollar is spent in buying financial assets.

Question 17

Tobin's model of the speculative demand for money shows that people hold money as a ________ as a way of reducing ________.

Accepted Answer

A)   medium of exchange; transaction costs
B)   medium of exchange; risk
C)   store of wealth; transaction costs
D)   store of wealth; risk

Question 18

The finance of government spending through a Treasury sale of bonds which are then purchased by the Fed

Accepted Answer

A)   causes both reserves and the monetary base to rise.
B)   causes both reserves and the monetary base to decline.
C)   causes reserves to rise, but the monetary base to decline.
D)   has no net effect on the monetary base.

Question 19

The classical economists' conclusion that nominal income is determined by movements in the money supply rested on their belief that ________ could be treated as ________ in the short run.

Accepted Answer

A)   velocity; constant
B)   velocity; variable
C)   money; constant
D)   money; variable

Question 20

Explain the Keynesian theory of money demand.What motives did Keynes think determined money demand? What are the two reasons why Keynes thought velocity could not be treated as a constant?

Accepted Answer

Keynes believed the demand for money dep...

Exam 19: Quantity Theory, inflation and the Demand for Money

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 AnswerverifiedShow Answer

The classical economists' conclusion that nominal income is determined by movements in the money supply rested on their belief that ________ could be treated as ________ in the short run.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Tobin's model of the speculative demand for money shows that people hold money as a ________ as a way of reducing ________.

Correct AnswerverifiedShow Answer

The velocity of money is

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The velocity of money is defined as

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The equation of exchange is

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Keynes's liquidity preference theory indicates that the demand for money is ________ related to ________.

Correct AnswerverifiedShow Answer

The Keynesian theory of money demand emphasizes the importance of

Correct AnswerverifiedShow Answer

Only when budget deficits are financed by money creation does the increased government spending lead to ________ in the ________.

Correct AnswerverifiedShow Answer

The theory of portfolio choice indicates that factors affecting the demand for money include

Correct AnswerverifiedShow Answer

The theory of portfolio choice indicates that higher interest rates make money ________ desirable,and the demand for real money balances ________.

Correct AnswerverifiedShow Answer

The finance of government spending through a Treasury sale of bonds which are then purchased by the Fed

Correct AnswerverifiedShow Answer

The quantity theory of inflation indicates that the inflation rate equals

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 AnswerverifiedShow Answer

In the early 1990s,M2 growth underwent a dramatic ________,which some researchers believe ________ be explained by traditional money demand functions.

Correct AnswerverifiedShow Answer

The equation of exchange states that the quantity of money multiplied by the number of times this money is spent in a given year must equal

Correct AnswerverifiedShow Answer

Irving Fisher's view that velocity is fairly constant in the short run transforms the equation of exchange into the

Correct AnswerverifiedShow Answer

Explain the Keynesian theory of money demand.What motives did Keynes think determined money demand? What are the two reasons why Keynes thought velocity could not be treated as a constant?

Correct AnswerverifiedKeynes believed the demand for money dep...View AnswerShow 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

Correct Answer
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The classical economists' conclusion that nominal income is determined by movements in the money supply rested on their belief that could be treated as in the short run.

Correct Answer
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Correct Answer
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Tobin's model of the speculative demand for money shows that people hold money as a as a way of reducing .

Correct Answer
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Correct Answer
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Keynes's liquidity preference theory indicates that the demand for money is related to .

Correct Answer
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Correct Answer
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Only when budget deficits are financed by money creation does the increased government spending lead to in the .

Correct Answer
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Correct Answer
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The theory of portfolio choice indicates that higher interest rates make money desirable,and the demand for real money balances .

Correct Answer
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Correct Answer
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Correct Answer
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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

In the early 1990s,M2 growth underwent a dramatic ,which some researchers believe be explained by traditional money demand functions.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Keynes believed the demand for money dep...
View Answer

Correct Answer
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