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Money, Banking, and Financial Markets Practice Test: The Demand for Money
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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 people expect nominal interest rates to be higher in the future, the expected return to bonds________, and the demand for money ________.
2. For the classical economists, the quantity theory of money provided an explanation of movements in the price level. Movements in the price level result
3. Tobinʹs model of the speculative demand for money shows that people can reduce their________ by ________ their asset holdings.
4. Keynesʹs theory of the demand for money is consistent with
5. 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
6. If the money supply is $500 and nominal income is $4,000, the velocity of money is
7. Velocity, over the business cycle, tends to
8. 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
9. In the Baumol-Tobin analysis of transactions demand for money, either an increase in ________ or a decrease in ________ increases money demand.
10. According to Keynesʹs theory of liquidity preference, velocity increases when
11. In the liquidity trap, monetary policy ________.
12. Evidence since 1915 indicates that velocity has
13. In a liquidity trap, monetary policy has ________ effect on aggregate spending because a change in the money supply has ________ effect on interest rates.
14. Velocity is defined as
15. Keynesʹs model of the demand for money suggests that velocity is
16. In Friedmanʹs modern quantity theory, velocity depends upon the ratio of
17. If nominal GDP is $10 trillion, and velocity is 10, the money supply is
18. Cutting the money supply by one-third is predicted by the quantity theory of money to cause
19. The Baumol-Tobin analysis suggests that
20. If initially the money supply is $1 trillion, velocity is 5, the price level is 1, and real GDP is $5 trillion, an increase in the money supply to $2 trillion
21. Keynes hypothesized that the transactions component of money demand was primarily determined by the level of
22. Tobinʹs model of the speculative demand for money shows that people hold money as a store of wealth as a way of
23. In the Baumol-Tobin analysis of transactions demand, scale economies imply that an increase in real income increases the quantity of money demanded ________, while an increase in the price level increases the quantity of money demanded ________.
24. Keynes argued that the precautionary component of the demand for money was primarily determined by the level of peopleʹs ________, which he believed were proportional to ________.
25. Until the Great Depression, economists did not recognize that velocity

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