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| 1 | |
Which of the following is NOT included in the definition of M2? |
| | A) | travelers' checks |
| | B) | large negotiable CDs |
| | C) | deposits in a saving account at a credit union |
| | D) | deposits in a money market deposit account at a local S&L |
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| 2 | |
As credit and debit cards are more widely used, we should expect that |
| | A) | more money balances will be held in M1 |
| | B) | more money balances will be held in M2 |
| | C) | less money balances will be held in M2 |
| | D) | less money balances will be held in M1, but those held in M2 will remain unchanged |
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| 3 | |
Which of the following would lead to increased money balances in M1? |
| | A) | more purchases made on the internet |
| | B) | more credit card purchases |
| | C) | lower inflationary expectations |
| | D) | all of the above |
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| 4 | |
Which of the following will not affect money balances in M2? |
| | A) | increased use of credit cards |
| | B) | increased used of ATMs |
| | C) | increased fees for switching funds from a savings account to a checking account |
| | D) | all of the above |
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| 5 | |
If a large number of people o=purchase U.S. government savings bonds using funds from their savings accounts at their local S&Ls , which of the following will be true? |
| | A) | less money balances will now be held in M1 |
| | B) | less money balances will now be held in M2 |
| | C) | more money balances will now be held in M2 |
| | D) | money balances held in M1 will decrease but those held in M2 will not be affected |
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| 6 | |
Which of the following financial assets is considered to be LEAST liquid? |
| | A) | a government savings bond |
| | B) | a deposit in an interest-earning checking account |
| | C) | a deposit in a money market deposit account |
| | D) | a share in a money market mutual fund |
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| 7 | |
A financial asset is considered less liquid if |
| | A) | it has a longer maturity |
| | B) | it is issued by the government rather than a large corporation such as Microsoft |
| | C) | it earns a lower yield |
| | D) | none of the above |
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| 8 | |
In 1995, a survey by the Fed found that the average U.S. citizen held about $100 in currency while the total U.S. currency outstanding divided by the total U.S. population came to about $1,375. This implies that large amounts of U.S. currency must be held |
| | A) | by businesses |
| | B) | by people in other countries |
| | C) | by people who want to finance illegal activities |
| | D) | all of the above |
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| 9 | |
U.S. coins and bills are generally accepted in payment all over the U.S. and even in some other countries, since |
| | A) | the fact that people get paid in reU.S. currency is the best store of value even in times of high inflationgular intervals |
| | B) | U.S. currency is backed up by the U.S. government through its holdings of gold reserves |
| | C) | the people who accept it believe that it will later also be accepted in payment by others |
| | D) | all of the above |
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| 10 | |
The Baumol-Tobin square-root formula for money demand applies primarily to |
| | A) | the transactions motive of holding money |
| | B) | the precautionary motive of holding money |
| | C) | the speculative motive of holding money |
| | D) | the store-of-value motive of holding money |
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| 11 | |
According to the Baumol-Tobin square-root formula, the amount of money balances held for transaction will |
| | A) | increase as interest rates increase |
| | B) | decrease as the cost of money transactions increases |
| | C) | increase less than proportionately to increases in income |
| | D) | all of the above |
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| 12 | |
The Baumol-Tobin square-root formula predicts that |
| | A) | the interest elasticity of money demand is equal to + 1/2 |
| | B) | the income elasticity of money demand is equal to - 1/2 |
| | C) | there are economies of scale to cash management |
| | D) | all of the above |
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| 13 | |
Which of the following is NOT an example of precautionary money holdings? |
| | A) | a business puts most of last month's profit in a Super-NOW account in anticipation of future cash flow problems |
| | B) | a restaurant increases its cash register holdings assuming its new menu will attract more customers |
| | C) | your parents buy you $500 worth of traveler's checks in case you can't find a convenient ATM-machine on your trip abroad |
| | D) | you take a few extra $100 bills with you on a trip, in case you find a good antique store |
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| 14 | |
The speculative demand for money |
| | A) | will always increase proportionately to the precautionary demand for money |
| | B) | will always increase proportionately to the transactions demand for money |
| | C) | is affected by changes in bond yields but not equity yields |
| | D) | cannot be easily separated from money demand for transaction or precaution |
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| 15 | |
If the expected growth rate in real GDP for next year is 2.5%, we can anticipate that the demand for M1 money holdings will |
| | A) | also increase by 2.5% |
| | B) | increase by more than 2.5% |
| | C) | increase by less than 2.5% |
| | D) | remain constant |
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| 16 | |
The income velocity of money will decrease |
| | A) | as the economy goes into a recession |
| | B) | as the economy goes into a boom |
| | C) | as the rate of inflation increases sharply |
| | D) | as soon as the central bank announces a decrease in money supply |
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| 17 | |
The income velocity of money is defined as |
| | A) | real money supply divided by real GDP |
| | B) | nominal money supply divided by nominal GDP |
| | C) | nominal GDP divided by nominal money supply |
| | D) | national income divided by the currency outstanding |
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| 18 | |
If the government increases the level of government purchases, we can expect that |
| | A) | interest rates and the income velocity of money will both increase |
| | B) | interest rates and the income velocity of money will both decrease |
| | C) | interest rates will increase but the income velocity of money will decrease |
| | D) | interest rates will increase but the income velocity of money will remain the same |
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| 19 | |
According to the quantity theory of money, in the long run |
| | A) | the behavior of velocity is hard to predict |
| | B) | a change in money supply will be followed by a proportional change in the price level |
| | C) | an increase in nominal money supply will result in a proportional decrease in velocity |
| | D) | an increase in nominal money supply will result in a proportional increase in velocity |
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| 20 | |
Which of the following statements is FALSE? |
| | A) | a high income velocity of money implies a low demand for money |
| | B) | while the income velocity of money was fairly stable for many years before 1990, it has varied considerably since |
| | C) | the income velocity of money has a strong tendency to rise and fall with market interest rates |
| | D) | the income velocity of money is larger than the transaction velocity of money |
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