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WorksheetsMB_Chapter4_ The Demand for Money
Total questions: 15
Worksheet time: 10mins
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
interest-rate determination.
the demand for money.
exchange-rate determination.
the demand for assets
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
gross national product.
the spending multiplier.
the money multiplier.
velocity.
If the money supply is $500 and nominal income is $3,000, the velocity of money is
1/60.
1/6.
6.
60
If nominal GDP is $10 trillion, and the money supply is $2 trillion, velocity is
0,5
5
10
20
The velocity of money is defined as
real GDP divided by the money supply.
nominal GDP divided by the money supply.
real GDP times the money supply.
nominal GDP times the money supply
Irving Fisher took the view that the institutional features of the economy which affect velocity
change ________ over time so that velocity will be fairly ________ in the short run.
rapidly; erratic
rapidly; stable
slowly; stable
slowly; erratic
The classical economistsʹ conclusion that nominal income is determined by movements in the
money supply rested on their belief that ________ could be treated as ________ in the short run.
velocity; constant
velocity; variable
money; constant
money; variable
_______ 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.
Keynesʹs
Fisherʹs
Friedmanʹs
Tobinʹs
The Keynesian theory of money demand emphasizes the importance of
a constant velocity.
irrational behaviour on the part of some economic agents.
interest rates on the demand for money.
expectations
Keynes hypothesized that the precautionary component of money demand was primarily
determined by the level of
interest rates.
velocity.
income.
stock market prices
The speculative motive for holding money is closely tied to what function of money?
Store of wealth
Unit of account
Medium of exchange
Standard of deferred payment
Of the three motives for holding money suggested by Keynes, which did he believe to be the
most sensitive to interest rates?
The transactions motive.
The precautionary motive.
The speculative motive.
The altruistic motive.
Because Keynes assumed that the expected return on money was zero, he argued that people
would
never hold money.
never hold money as a store of wealth.
hold money as a store of wealth when the expected return on bonds was negative.
hold money as a store of wealth only when forced to by government policy.
In Friedmanʹs modern quantity theory, velocity depends upon the ratio of
money to prices.
actual to permanent income.
interest rates to actual income.
prices to interest rates.
According to Milton Friedman, the demand for money is insensitive to interest rates because
the demand for money is insensitive to changes in the opportunity cost of holding money.
competition among banks keeps the opportunity cost of holding money relatively
constant.
people base their investment decisions on expected profits, not interest rates.
transactions are not subject to scale economies as wealth increases.
