Question 1

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 2

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

Accepted Answer

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

Question 3

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 4

The quantity theory of inflation indicates that if the aggregate output is growing at 3% per year and the growth rate of money is 5%,then inflation is

Accepted Answer

A)  2%.
B)  8%.
C)  -2%.
D)  1.6%.

Question 5

Keynes's liquidity preference theory indicates that the demand for money

Accepted Answer

A)  is purely a function of income,and interest rates have no effect on the demand for money.
B)  is purely a function of interest rates,and income has no effect on the demand for money.
C)  is a function of both income and interest rates.
D)  is a function of both government spending and income.

Question 6

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

Accepted Answer

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

Question 7

Starting in 1974,the conventional M1 money demand function began to

Accepted Answer

A)  severely underpredict the demand for money.
B)  severely overpredict the demand for money.
C)  predict more precisely the demand for money.
D)  do none of the above.

Question 8

Starting in 1974,the conventional M1 money demand function began to severely ________ the demand for money.Stephen Goldfeld labeled this phenomenon "the case of the missing ________."

Accepted Answer

A)  underpredict;velocity
B)  overpredict;velocity
C)  underpredict;money
D)  overpredict;money

Question 9

Empirical evidence shows that the quantity theory of money is a good theory of inflation

Accepted Answer

A)  in the long run,but not in the short run.
B)  in the short run,but not in the longrun.
C)  in both the long run and the short run.
D)  not in either the long run nor the short run.

Question 10

According to the quantity theory of money demand

Accepted Answer

A)  an increase in interest rates will cause the demand for money to fall.
B)  a decrease in interest rates will cause the demand for money to increase.
C)  interest rates have no effect on the demand for money.
D)  an increase in money will cause the demand for money to fall.

Question 11

Because the quantity theory of money tells us how much money is held for a given amount of aggregate income,it is also a theory of

Accepted Answer

A)  interest-rate determination.
B)  the demand for money.
C)  exchange-rate determination.
D)  the demand for assets.

Question 12

The reason that economists are so interested in the stability of velocity is because if the demand for money is not stable,then steady growth of the money supply

Accepted Answer

A)  is going to promote price stability at the expense of low unemployment.
B)  is going to promote low unemployment at the expense of price stability.
C)  is an ineffective way to conduct monetary policy.
D)  can still be used to conduct monetary policy if the goal is price stability. C

Question 13

Keynes's liquidity preference theory indicates that the demand for money is

Accepted Answer

A)  constant.
B)  positively related to interest rates.
C)  negatively related to interest rates.
D)  negatively related to bond values.

Question 14

As interest rates rise,the expected absolute return of money ________,money's expected return relative to bonds ________.

Accepted Answer

A)  does not change;decrease
B)  rises;decrease
C)  does not change;increase
D)  falls;decrease

Question 15

The Keynesian demand for real balances can be expressed as

Accepted Answer

A)  Mᵈ = f(i,Y) .
B)  Mᵈ/P = f(i) .
C)  Mᵈ/P = f(Y) .
D)  Mᵈ/P = f(i,Y) .

Question 16

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 17

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...

Question 18

Researchers at the Federal Reserve found that M2 money demand functions performed ________ in the 1980s,with M2 velocity moving ________ with the opportunity cost of holding M2.

Accepted Answer

A)  poorly;erratically
B)  poorly;closely
C)  well;erratically
D)  well;closely D

Question 19

Because Treasury bills pay a higher return than money and have no risk

Accepted Answer

A)  the transactions demand for money may be zero.
B)  the precautionary demand for money may be zero.
C)  the speculative demand for money may be zero.
D)  all three of the above motives for holding money will be zero.

Question 20

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

Exam 22: Quantity Theory, inflation and the Demand for Money

The quantity theory of inflation indicates that the inflation rate equals

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedC

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

Correct AnswerverifiedShow Answer

The quantity theory of inflation indicates that if the aggregate output is growing at 3% per year and the growth rate of money is 5%,then inflation is

Correct AnswerverifiedShow Answer

Keynes's liquidity preference theory indicates that the demand for money

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Starting in 1974,the conventional M1 money demand function began to

Correct AnswerverifiedShow Answer

Starting in 1974,the conventional M1 money demand function began to severely ________ the demand for money.Stephen Goldfeld labeled this phenomenon "the case of the missing ________."

Correct AnswerverifiedShow Answer

Empirical evidence shows that the quantity theory of money is a good theory of inflation

Correct AnswerverifiedShow Answer

According to the quantity theory of money demand

Correct AnswerverifiedShow Answer

Because the quantity theory of money tells us how much money is held for a given amount of aggregate income,it is also a theory of

Correct AnswerverifiedShow Answer

The reason that economists are so interested in the stability of velocity is because if the demand for money is not stable,then steady growth of the money supply

Correct AnswerverifiedC

Keynes's liquidity preference theory indicates that the demand for money is

Correct AnswerverifiedShow Answer

As interest rates rise,the expected absolute return of money ________,money's expected return relative to bonds ________.

Correct AnswerverifiedShow Answer

The Keynesian demand for real balances can be expressed as

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

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

Researchers at the Federal Reserve found that M2 money demand functions performed ________ in the 1980s,with M2 velocity moving ________ with the opportunity cost of holding M2.

Correct AnswerverifiedD

Because Treasury bills pay a higher return than money and have no risk

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

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

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C

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

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Starting in 1974,the conventional M1 money demand function began to severely the demand for money.Stephen Goldfeld labeled this phenomenon "the case of the missing ."

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C

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As interest rates rise,the expected absolute return of money ,money's expected return relative to bonds .

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

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Keynes believed the demand for money dep...
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Researchers at the Federal Reserve found that M2 money demand functions performed in the 1980s,with M2 velocity moving with the opportunity cost of holding M2.

Correct Answer
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D

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

Correct Answer
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