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Money, Banking, and Financial Markets Practice Test: The Demand for Money
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Avg score: 33% • Most missed: “The more sensitive is the demand for money to interest rates, the ________ unpre…”
In monetary economics, the demand for money is the amount of money people want to hold in the form of cash or bank deposits. It can also refer to the demand for money in the broader sense of M2 or M3. The demand for money is a linear function that is positive in income and negative in interest rate. Some factors that can lead to a shift in the demand for money include: Real GDP, The price level, Economic expectations, Transfer costs, and Preferences.  The demand for money is different from both income and wealth.  There are three main reasons to hold money: Transactions: People need money... Show more
Money, Banking, and Financial Markets Practice Test: The Demand for Money
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25 Questions

1. If the money supply is $600 and nominal income is $3,600, the velocity of money is
2. According to Milton Friedman, income declines relative to permanent income during a business cycle contraction, causing the demand for money relative to actual income to increase, thereby causing velocity to
3. If the money supply is $500 and nominal income is $4,000, the velocity of money is
4. The speculative demand for money may not exist because
5. 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.
6. Tobinʹs model of the speculative demand for money shows that people hold money as a store of wealth as a way of
7. Keynesʹs liquidity preference theory indicates that the demand for money
8. Velocity is defined as
9. If people expect nominal interest rates to be higher in the future, the expected return to bonds________, and the demand for money ________.
10. The Keynesian theory of money demand emphasizes the importance of
11. The Baumol-Tobin analysis suggests that an increase in the brokerage fee for buying and selling bonds will cause the demand for money to ________ and the demand for bonds to ________.
12. In the liquidity trap, the money demand curve ________.
13. If nominal GDP is $10 trillion, and the money supply is $2 trillion, velocity is
14. Keynesʹs theory of the demand for money is consistent with ________ movements in ________.
15. ________ 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.
16. The reason that economists are so interested in the stability of velocity is because if the demand for money is not stable, then steady growth of the money supply
17. If the money supply is $2 trillion and velocity is 5, then nominal GDP is
18. Keynesʹs theory of the demand for money is consistent with
19. Tobinʹs model of the speculative demand for money shows that people hold money as a________ as a way of reducing ________.
20. In one of the earliest studies on the link between interest rates and money demand using UnitedStates data, James Tobin concluded that the demand for money is
21. In Irving Fisherʹs quantity theory of money, velocity was determined by
22. The evidence on the interest sensitivity of the demand for money suggests that the demand for money is ________ to interest rates, and there is ________ evidence that a liquidity trap exists.
23. If there are economies of scale in the transactions demand for money, as income increases, money demand
24. If initially the money supply is $2 trillion, velocity is 5, the price level is 2, and real GDP is $5 trillion, a fall in the money supply to $1 trillion
25. The ________ sensitive is the demand for money to interest rates, the more unpredictable velocity will be, and the link between the money supply and aggregate spending will be________ clear.

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