Question 1

In the Baumol-Tobin analysis of the demand for money,either an increase in ________ or an increase in ________ increases money demand.

Accepted Answer

A)  income; interest rates
B)  brokerage fees; interest rates
C)  interest rates; the price level
D)  brokerage fees; income

Question 2

Tobin's model of the speculative demand for money improves on Keynes's analysis by showing that

Accepted Answer

A)  the speculative demand for money is interest insensitive.
B)  the transactions demand for money is interest insensitive.
C)  people will hold a diversified portfolio.
D)  people will hold money or bonds but not both.

Question 3

The average number of times that a dollar is spent in buying the total amount of final goods and services produced during a given time period is known as

Accepted Answer

A)  gross national product.
B)  the spending multiplier.
C)  the money multiplier.
D)  velocity.

Question 4

According to Milton Friedman,income rises relative to permanent income during a business cycle expansion,causing the demand for money relative to actual income to decrease,thereby causing velocity to ________.

Accepted Answer

A)  rise
B)  decline
C)  remain unchanged,since velocity depends only on interest rates
D)  decline,provided that interest rates increase when the economy contracts

Question 5

Velocity,over the business cycle,tends to

Accepted Answer

A)  rise during economic contractions.
B)  fall during economic expansions.
C)  stay constant.
D)  fall during economic contractions.

Question 6

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 7

The classical economists' contention that prices double when the money supply doubles is predicated on the belief that in the short run velocity is ________ and real GDP is ________.

Accepted Answer

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

Question 8

If nominal GDP is $8 trillion,and the money supply is $2 trillion,velocity is

Accepted Answer

A)  0.25.
B)  4.
C)  8.
D)  16.

Question 9

If the money supply is $600 and nominal income is $3,600,the velocity of money is

Accepted Answer

A)  1/60.
B)  1/6.
C)  6.
D)  60.

Question 10

The ________ sensitive is the demand for money to interest rates,the ________ unpredictable velocity will be,and the link between the money supply and aggregate spending will be less clear.

Accepted Answer

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

Question 11

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 12

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 13

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 14

In Friedman's modern quantity theory,velocity depends upon the ratio of

Accepted Answer

A)  money to prices.
B)  actual to permanent income.
C)  interest rates to actual income.
D)  prices to interest rates.

Question 15

Tobin's model of the speculative demand for money shows that people can reduce their ________ by ________ their asset holdings.

Accepted Answer

A)  wealth; diversifying
B)  risk; specializing
C)  return; diversifying
D)  risk; diversifying

Question 16

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

Question 17

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 18

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 19

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 20

Cutting the money supply by one-third is predicted by the quantity theory of money to cause

Accepted Answer

A)  a sharp decline in real output of one-third in the short run,and a fall in the price level by one-third in the long run.
B)  a decline in real output by one-third.
C)  a decline in output by one-sixth,and a decline in the price level of one-sixth.
D)  a decline in the price level by one-third.

Exam 19: The Demand for Money

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

In the Baumol-Tobin analysis of the demand for money,either an increase in ________ or an increase in ________ increases money demand.

Correct AnswerverifiedShow Answer

Tobin's model of the speculative demand for money improves on Keynes's analysis by showing that

Correct AnswerverifiedShow Answer

The classical economists' contention that prices double when the money supply doubles is predicated on the belief that in the short run velocity is ________ and real GDP is ________.

Correct AnswerverifiedShow Answer

If nominal GDP is $8 trillion,and the money supply is $2 trillion,velocity is

Correct AnswerverifiedShow Answer

According to the quantity theory of money demand,

Correct AnswerverifiedShow Answer

In Friedman's modern quantity theory,velocity depends upon the ratio of

Correct AnswerverifiedShow Answer

Tobin's model of the speculative demand for money shows that people can reduce their ________ by ________ their asset holdings.

Correct AnswerverifiedShow Answer

According to Milton Friedman,income rises relative to permanent income during a business cycle expansion,causing the demand for money relative to actual income to decrease,thereby causing velocity to ________.

Correct AnswerverifiedShow Answer

Cutting the money supply by one-third is predicted by the quantity theory of money to cause

Correct AnswerverifiedShow Answer

The velocity of money is defined as

Correct AnswerverifiedShow Answer

The average number of times that a dollar is spent in buying the total amount of final goods and services produced during a given time period is known as

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

Velocity,over the business cycle,tends to

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the money supply is $600 and nominal income is $3,600,the velocity of money is

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

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 ________ sensitive is the demand for money to interest rates,the ________ unpredictable velocity will be,and the link between the money supply and aggregate spending will be less clear.

Correct AnswerverifiedShow Answer

Evidence suggests that a liquidity trap is possible when ________.

Correct AnswerverifiedShow Answer

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In the Baumol-Tobin analysis of the demand for money,either an increase in or an increase in increases money demand.

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The classical economists' contention that prices double when the money supply doubles is predicated on the belief that in the short run velocity is and real GDP is .

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Tobin's model of the speculative demand for money shows that people can reduce their by their asset holdings.

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

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The sensitive is the demand for money to interest rates,the unpredictable velocity will be,and the link between the money supply and aggregate spending will be less clear.

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