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The relationship between real income and precautionary demand for real money balances is which of the following?


A) direct
B) inverse
C) perfectly horizontal
D) There is no relationship.

Correct Answer

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A real money balance is which of the following?


A) Currency in the hands of the public
B) The money supply divided by the overall price level
C) Currency plus checkable deposits
D) Domestically held deposits rather than foreign-held deposits

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Holding cash as a means of payment refers to which of the following motives for holding money?


A) transactions motive
B) precautionary motive
C) speculative motive
D) None of the above is correct.

Correct Answer

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The liquidity preference theory is a theory of the demand for money developed by ____________ that results in an inverse relationship between the quantity of money demanded and the interest rate.


A) John Maynard Keynes
B) Milton Friedman
C) Irving Fisher
D) Paul Samuelson

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Which of the following is the foregone interest that holding nonmonetary financial assets would have yielded?


A) the costs of holding real money balances
B) benefits of holding real balances
C) transactions motive
D) liquidity preference

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An individual's demand for money is


A) directly related to the interest rate.
B) inversely related to the brokerage fee.
C) equal to the average daily holding of funds.
D) equal to the amount of each withdrawal.

Correct Answer

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Ceteris paribus, when the risk of holding other assets increases, which of the following happens?


A) The demand curve for money shifts to the right.
B) The demand curve for money shifts to the left.
C) There is a movement downward on the demand curve for money.
D) There is a movement upward on the demand curve for money.

Correct Answer

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Which of the following factors would affect the demand for real money balances?


A) payment technologies
B) expected inflation
C) liquidity of other financial assets
D) All of the above are correct.

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ATM machines become more accessible. The demand for money will


A) increase.
B) decrease.
C) stay the same.
D) It is impossible to tell.

Correct Answer

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Which of the following asserts that there is a speculative demand for money in which the quantity demanded of money is inversely related to the interest rate?


A) Hobbs' monetary theory
B) Greenspan's inverse theory
C) Keynes' liquidity preference theory
D) Ricardo's a real money balance of rent theory

Correct Answer

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Ceteris paribus, the relationship between the quantity demanded of real money balances and the interest rate is which of the following?


A) direct
B) inverse
C) perfectly horizontal
D) There is no relationship.

Correct Answer

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B

Holding extra money in your checking account just in case your car needs to be repaired is an example of which of the following motives for holding money?


A) transactions motive
B) precautionary motive
C) speculative motive
D) None of the above is correct.

Correct Answer

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B

If a price index is 150 and nominal income is $10,000, what is real income?


A) $500,000.00
B) $50,000.00
C) $10,000
D) $6666.67

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D

If the economy is more prone to inflation, what will generally happen to the demand for real money balances?


A) Demand will remain the same.
B) Demand will increase.
C) Demand will decrease.
D) Demand will fluctuate wildly.

Correct Answer

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Which of the following would not be considered a supply shock?


A) a new technological breakthrough
B) an extremely heavy frost
C) inflation
D) a labor strike

Correct Answer

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Which of the following statements is false?


A) The cost of holding real money balances is the foregone interest that holding nonmonetary financial assets would have yielded.
B) The benefits of holding real money balances is the stream of services that holding real money balances yields.
C) The demand for money is a demand for nominal money balances.
D) If the brokerage fee increases, households make fewer calls to the broker.

Correct Answer

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Which of the following is false?


A) My real income rises 10 percent; therefore, my demand for real money balances will also rise 10 percent.
B) The nominal money supply and the price level have both risen by 10 percent; therefore, the supply of real money balances is unchanged.
C) The demand for money is really a demand for real money balances, M/P.
D) Ceteris paribus, the quantity demanded of real money balances is inversely related to the interest rate.

Correct Answer

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If the interest rate decreases, ceteris paribus,


A) the demand curve for money shifts to the right.
B) the demand curve for money shifts to the left.
C) there is a movement downward along the demand curve for money.
D) there is a movement upward along the demand curve for money.

Correct Answer

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A real money balance is which of the following?


A) the nominal money supply multiplied by the overall price level
B) the nominal money supply divided by the overall price level
C) the overall price level multiplied by the nominal money supply
D) the overall price level less the nominal money supply

Correct Answer

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-Refer to Figure . It would be accurate to say that A) as the interest rate rose, the demand for real money balances increased. B) as the interest rate rose, the quantity demanded of real money balances increased. C) as the interest rate fell, the demand for real money balances increased. D) as the interest rate fell, the quantity demanded of real money balances increased. -Refer to Figure . It would be accurate to say that


A) as the interest rate rose, the demand for real money balances increased.
B) as the interest rate rose, the quantity demanded of real money balances increased.
C) as the interest rate fell, the demand for real money balances increased.
D) as the interest rate fell, the quantity demanded of real money balances increased.

Correct Answer

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