Exam Name___________________________________

MULTIPLECHOICE.Choosetheonealternativethatbestcompletesthestatementoranswersthequestion. 1) Thequantitytheoryofmoneyisatheoryofhow A) thenominalvalueofaggregateincomeisdetermined. B) themoneysupplyisdetermined. C) therealvalueofaggregateincomeisdetermined. D) interestratesaredetermined. 2) Ifthemoneysupplyis$500andnominalincomeis$4,000,thevelocityofmoneyis A) 1/20. B) 1/8. C) 8. D) 20. 3) D) $10trillion. 4) B) M V = P Y. C) M + Y= V+ P. D) M P=V Y. 5) 2) 1)

3) Ifthemoneysupplyis$2trillionandvelocityis5,thennominalGDPis A) $1trillion. 4) Theequationofexchangeis A) M + V=P+ Y. B) $2trillion. C) $5trillion.

5) Fortheclassicaleconomists,thequantitytheoryofmoneyprovidedanexplanationofmovements inthepricelevel.Movementsinthepricelevelresult A) primarilyfromchangesinthequantityofmoney. B) onlypartiallyfromchangesinthequantityofmoney. C) solelyfromchangesinthequantityofmoney. D) fromchangesinfactorsotherthanthequantityofmoney. 6) Theempiricalevidenceregardingthevelocityofmoneyindicatesthatvelocitytendstobe_____; thatis,velocity_____wheneconomicactivitycontracts. A) procyclical;increases C) countercyclical;declines B) procyclical;declines D) countercyclical;increases

6)

7) UntiltheGreatDepression,economistsdidnotrecognizethatvelocity A) declinesduringrapideconomicexpansions,sincemoneygrowthfailstokeeppace. B) failstodeclineduringeconomiccontractions. C) declinesduringsevereeconomiccontractions. D) increasesduringsevereeconomiccontractions.

7)

8) TheKeynesiantheoryofmoneydemandpredictsthatpeoplewillincreasetheirmoneyholdingsif theybelievethat A) interestratesareabouttofall. C) bondpricesareabouttofall. B) bondpricesareabouttorise. D) expectedinflationisabouttofall.

8)

9) Thedemandformoneyasacushionagainstunexpectedcontingenciesiscalledthe A) speculativemotive. C) insurancemotive. B) precautionarymotive. D) transactionsmotive.

9)

10) Keynesarguedthatwheninterestrateswerehighrelativetosomenormalvalue,peoplewould expectbondpricesto_____,sothequantityofmoneydemandedwould_____. A) decrease;increase C) increase;increase B) increase;decrease D) decrease;decrease

10)

11) IntheBaumol- Tobinanalysisoftransactionsdemand,scaleeconomiesimplythatanincreasein realincomeincreasesthequantityofmoneydemanded______,whileanincreaseinthepricelevel increasesthequantityofmoneydemanded______. A) morethanproportionately;proportionately B) proportionately;lessthanproportionately C) lessthanproportionately;proportionately D) proportionately;morethanproportionately 12) Inaliquiditytrap,monetarypolicyhas________effectonaggregatespendingbecauseachangein themoneysupplyhas________effectoninterestrates. A) alarge;alarge B) no;alarge C) no;no D) no;asmall

11)

12)

13) AccordingtoMiltonFriedman,thedemandformoneyisinsensitivetointerestratesbecause A) competitionamongbankskeepstheopportunitycostofholdingmoneyrelativelyconstant. B) peoplebasetheirinvestmentdecisionsonexpectedprofits,notinterestrates. C) transactionsarenotsubjecttoscaleeconomiesaswealthincreases. D) thedemandformoneyisinsensitivetochangesintheopportunitycostofholdingmoney. 14) Intheliquiditytrap,themoneydemandcurve A) isvertical. C) ispositivelysloped. B) ishorizontal. D) isnegativelysloped.

13)

14)

15) Acentralquestioninmonetarytheoryiswhetherortowhatextentthequantityofmoney demandedisaffectedbychangesin A) thepricelevel. B) interestrates. C) inflation. D) income.

15)

16) Tobinsmodelofthespeculativedemandformoneyshowsthatpeoplecanreducetheir____by _____theirassetholdings. A) wealth;diversifying C) risk;diversifying B) return;diversifying D) risk;specializing

16)

17) InFriedmansmodernquantitytheory,theimpliedformulaforvelocityis A) V=f(Yp)/Y. B) V =Y/f(i). C) V= Y/f(Yp). D) V =M d/f(i).

17)

18) ResearchersattheFederalReservefoundthatM2moneydemandfunctionsperformed________ inthe1980s,withM2velocitymoving________withtheopportunitycostofholdingM2. A) poorly;closely C) well;erratically B) well;closely D) poorly;erratically

18)

19) Keynessliquiditypreferencetheoryindicatesthatthedemandformoneyis A) negativelyrelatedtobondvalues. C) negativelyrelatedtointerestrates. 20) Theabsenceofmoneyillusionmeansthat A) asthemoneysupplydoubles,thedemandformoneydoubles. B) asinterestratesdouble,thedemandformoneydoubles. C) asrealincomedoubles,thedemandformoneydoubles. D) asthepriceleveldoubles,thedemandformoneydoubles. B) constant. D) positivelyrelatedtointerestrates.

19)

20)

AnswerKey Testname:CH19_PRACTICE

1) A 2) C 3) D 4) B 5) C 6) B 7) C 8) C 9) B 10) B 11) C 12) C 13) A 14) B 15) B 16) C 17) C 18) B 19) C 20) D