Question 1

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.E) A) and D)
F) None of the above

Question 2

Because Keynes assumed that the expected return on money was zero,he argued that people would

Accepted Answer

A)  never hold money.
B)  never hold money as a store of wealth.
C)  hold money as a store of wealth when the expected return on bonds was negative.
D)  hold money as a store of wealth only when forced to by government policy.E) None of the above
F) A) and D)

Question 3

If the money supply is $600 and nominal income is $3,000,the velocity of money is

Accepted Answer

A)  1/50.
B)  1/5.
C)  5.
D)  50.E) A) and C)
F) C) and D)

Question 4

If the money supply is $2 trillion and velocity is 5,then nominal GDP is

Accepted Answer

A)  $1 trillion.
B)  $2 trillion.
C)  $5 trillion.
D)  $10 trillion.E) A) and B)
F) B) and D)

Question 5

The quantity theory of money is a theory of how

Accepted Answer

A)  the money supply is determined.
B)  interest rates are determined.
C)  the nominal value of aggregate income is determined.
D)  the real value of aggregate income is determined.E) A) and C)
F) None of the above

Question 6

In the 20th century,velocity has

Accepted Answer

A)  been quite stable over periods as long as a decade.
B)  grown at a constant rate.
C)  been quite volatile.
D)  been quite stable over short,two year periods.E) B) and C)
F) A) and C)

Question 7

The Baumol-Tobin analysis suggests that

Accepted Answer

A)  velocity is relatively constant.
B)  the transactions component of the demand for money is negatively related to the level of interest rates.
C)  the speculative motive is nonexistent.
D)  velocity is unrelated to the transactions motive.E) None of the above
F) All of the above

Question 8

Until the Great Depression,economists did not recognize that velocity

Accepted Answer

A)  increases during severe economic contractions.
B)  declines during severe economic contractions.
C)  declines during rapid economic expansions,since money growth fails to keep pace.
D)  fails to decline during economic contractions.E) A) and B)
F) A) and C)

Question 9

The Baumol-Tobin analysis suggests that a decrease in the brokerage fee for buying and selling bonds will cause the demand for money to ________ and the demand for bonds to ________.

Accepted Answer

A)  increase; increase
B)  increase; decrease
C)  decrease; decrease
D)  decrease; increaseE) A) and D)
F) C) and D)

Question 10

Evidence since 1915 indicates that velocity has

Accepted Answer

A)  grown at a fairly constant rate,even in the short run.
B)  fluctuated too much in the short run to be viewed as a constant.
C)  trended downward since 1950 due to technological and financial innovations.
D)  remained fairly constant in the short run,but tends to slowly increase.E) B) and C)
F) C) and D)

Question 11

Keynes's theory of the demand for money is consistent with ________ movements in ________.

Accepted Answer

A)  countercyclical; velocity
B)  procyclical; velocity
C)  countercyclical; expectations
D)  procyclical; expectationsE) None of the above
F) A) and B)

Question 12

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; closelyE) B) and D)
F) None of the above

Question 13

In one of the earliest studies on the link between interest rates and money demand using United States data,James Tobin concluded that the demand for money is

Accepted Answer

A)  sensitive to interest rates.
B)  not sensitive to interest rates.
C)  not sensitive to changes in income.
D)  not sensitive to changes in bond values.E) A) and B)
F) All of the above

Question 14

________ quantity theory of money suggests that the demand for money is purely a function of income,and interest rates have no effect on the demand for money.

Accepted Answer

A)  Keynes's
B)  Fisher's
C)  Friedman's
D)  Tobin'sE) B) and C)
F) B) and D)

Question 15

Friedman's argument that competition among banks will tend to keep the difference between the return on bonds and money relatively constant implies that changes in ________ will have ________ on the demand for money.

Accepted Answer

A)  interest rates; a big impact
B)  income; a big impact
C)  income; little effect
D)  interest rates; little effectE) A) and B)
F) A) and C)

Question 16

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 largeE) A) and B)
F) A) and C)

Question 17

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; decreaseE) B) and C)
F) B) and D)

Question 18

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 paymentE) All of the above
F) B) and C)

Question 19

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; canE) None of the above
F) B) and C)

Question 20

The more 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 ________ clear.

Accepted Answer

A)  more; more
B)  more; less
C)  less; more
D)  less; lessE) A) and B)
F) B) and C)

Exam 19: The Demand for Money

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

Until the Great Depression,economists did not recognize that velocity

Correct AnswerverifiedShow Answer

________ quantity theory of money suggests that the demand for money is purely a function of income,and interest rates have no effect on the demand for money.

Correct AnswerverifiedShow Answer

The Baumol-Tobin analysis suggests that

Correct AnswerverifiedShow Answer

Evidence since 1915 indicates that velocity has

Correct AnswerverifiedShow Answer

Friedman's argument that competition among banks will tend to keep the difference between the return on bonds and money relatively constant implies that changes in ________ will have ________ on the demand for money.

Correct AnswerverifiedShow 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 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

The quantity theory of money is a theory of how

Correct AnswerverifiedShow Answer

In the 20th century,velocity has

Correct AnswerverifiedShow Answer

The Baumol-Tobin analysis suggests that a decrease in the brokerage fee for buying and selling bonds will cause the demand for money to ________ and the demand for bonds to ________.

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 the money supply is $2 trillion and velocity is 5,then nominal GDP is

Correct AnswerverifiedShow Answer

In one of the earliest studies on the link between interest rates and money demand using United States data,James Tobin concluded that the demand for money is

Correct AnswerverifiedShow Answer

Keynes's theory of the demand for money is consistent with ________ movements in ________.

Correct AnswerverifiedShow Answer

The more 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 ________ clear.

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

Correct AnswerverifiedShow Answer

If the money supply is $600 and nominal income is $3,000,the velocity of money is

Correct AnswerverifiedShow Answer

Because Keynes assumed that the expected return on money was zero,he argued that people would

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 Answer
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Friedman's argument that competition among banks will tend to keep the difference between the return on bonds and money relatively constant implies that changes in will have on the demand for money.

Correct Answer
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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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Correct Answer
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Correct Answer
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The Baumol-Tobin analysis suggests that a decrease in the brokerage fee for buying and selling bonds will cause the demand for money to and the demand for bonds to .

Correct Answer
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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
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Correct Answer
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Correct Answer
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Keynes's theory of the demand for money is consistent with movements in .

Correct Answer
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The more 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 clear.

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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Correct Answer
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Correct Answer
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Correct Answer
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