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| 1 | |
The single most important fact in monetary economics is the: |
| | A) | positive relationship between money growth and inflation rates. |
| | B) | positive relationship between money growth and the real interest rate. |
| | C) | negative relationship between money growth and the real interest rate. |
| | D) | negative relationship between money growth and inflation rates. |
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| 2 | |
When a country has a high inflation rate: |
| | A) | people tend to spend money more quickly, which helps to reduce inflation. |
| | B) | people tend to spend money more quickly, which has the same effect on inflation as an increase in money growth. |
| | C) | people tend to spend money more slowly, which has the same effect on inflation as an increase in money growth. |
| | D) | there is also typically a high unemployment rate. |
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| 3 | |
Inflation can be thought of as: |
| | A) | a decrease in the value of money. |
| | B) | an increase in the value of money. |
| | C) | no change in the value of money, just in the supply of money. |
| | D) | no change in the value of money, just in the demand for money. |
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| 4 | |
If M = the money supply; Y = real output, P = the price level, and V = velocity, which of the following represents nominal GDP? |
| | A) | (P·Y) +M |
| | B) | (P·M)/Y |
| | C) | (Y·M)/P |
| | D) | (P·Y) |
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| 5 | |
If the equation of exchange is MV=PY and we assume that velocity is constant and that real output is determined solely by economic resources and production technology, then a change in M will result in a change in: |
| | A) | P. |
| | B) | Y. |
| | C) | PV. |
| | D) | VY. |
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| 6 | |
Which of the following is not a key assumption behind the quantity theory of money? |
| | A) | The change in nominal GDP is zero. |
| | B) | The percentage change in the price level equals the percentage change in the money supply. |
| | C) | The velocity of money is constant. |
| | D) | Real growth is determined by resources and technology. |
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| 7 | |
If we let Md represent money demand and the money market is in equilibrium, then: |
| | A) | Md =VY. |
| | B) | Md = V(PY). |
| | C) | Md V =PY. |
| | D) | Md = V(Y/P). |
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| 8 | |
A central bank policy to stabilize inflation by keeping money growth constant would be viable only if: |
| | A) | the velocity of money was decreasing over time. |
| | B) | the velocity of money was increasing over time. |
| | C) | velocity of money was constant. |
| | D) | nominal GDP were constant. |
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| 9 | |
Increases in velocity in the late 1970s and early 1980s can be attributed to financial innovations that: |
| | A) | made holding money very costly. |
| | B) | allowed individuals to economize on the amount of money they held. |
| | C) | Both of the above are correct. |
| | D) | None of the above is correct. |
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| 10 | |
As the monetary policy strategy of the European Central Bank has evolved over time, the role of money: |
| | A) | has become more prominent. |
| | B) | has become less prominent. |
| | C) | has not changed. |
| | D) | has changed in that there is more emphasis on the equivalent of M1 than M2. |
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| 11 | |
The higher the nominal interest rate: |
| | A) | the higher the opportunity cost of holding money. |
| | B) | the less money people will hold for any given level of transactions. |
| | C) | the higher the velocity of money. |
| | D) | All of the above are correct. |
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| 12 | |
The precautionary demand for money is usually included in the: |
| | A) | transactions demand for money. |
| | B) | portfolio demand for money. |
| | C) | both the transactions demand and the portfolio demand for money. |
| | D) | None of the above; it is a separate category. |
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| 13 | |
Controlling inflation: |
| | A) | is made more difficult in a high-inflation environment due to changes in velocity. |
| | B) | is made more difficult in a low-inflation environment due to changes in velocity. |
| | C) | depends more on the resolve of the central bank in a low-inflation environment. |
| | D) | is simpler in the short run because velocity is constant. |
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| 14 | |
Changes in mortgage refinancing rates have affected the velocity of M2 because: |
| | A) | people who are refinancing take out equity in their home and deposit funds in liquid deposit accounts. |
| | B) | as mortgages are refinanced flows of funds from holders of both old and new mortgages flow through accounts that are part of M2. |
| | C) | Both of the above are correct. |
| | D) | None of the above is correct. |
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| 15 | |
Comparing the ECB and the Fed, it is accurate to say that: |
| | A) | the ECB puts more emphasis on the interest rate target and less on a money target. |
| | B) | the ECB and the Fed differ in their emphasis on money growth but both use interest rates as their operating targets. |
| | C) | the ECB only uses a money growth target while the Fed only uses an interest rate target. |
| | D) | None of the above is correct. |
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