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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. The speculative demand for money may not exist because
2. Tobinʹs model of the speculative demand for money shows that people can reduce their________ by ________ their asset holdings.
3. 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 ________.
4. Comparing Tobinʹs model of the speculative demand for money with Keynesian speculative demand
5. 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.
6. Conventional money demand functions tended to ________ money demand in the middle and late 1970s, and ________ velocity beginning in 1982.
7. The Baumol-Tobin analysis suggests that
8. If the money supply is $600 and nominal income is $3,600, the velocity of money is
9. Keynesʹs theory of the demand for money implies that velocity is
10. For the classical economists, the quantity theory of money provided an explanation of movements in the price level. Movements in the price level result
11. Because Treasury bills pay a higher return than money and have no risk
12. Keynesʹs liquidity preference theory indicates that the demand for money is
13. Because interest rates have substantial fluctuations, the ________ theory of the demand for money indicates that velocity has substantial fluctuations as well.
14. In Friedmanʹs modern quantity theory, velocity is procyclical because
15. The quantity theory of money is a theory of how
16. 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.
17. The velocity of money is
18. Keynes argued that when interest rates were low relative to some normal value, people would expect bond prices to ________ so the quantity of money demanded would ________.
19. The empirical evidence regarding the velocity of money indicates that velocity tends to be________; that is, velocity ________ when economic activity contracts.
20. According to Milton Friedman, income rises relative to permanent income during a business cycle expansion, causing the demand for money relative to actual income to decrease, thereby causing velocity to ________.
21. In the Baumol-Tobin analysis of the demand for money, either an increase in ________ or an increase in ________ increases money demand.
22. In Friedmanʹs modern quantity theory, velocity depends upon the ratio of
23. 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.
24. If people expect nominal interest rates to be lower in the future, the expected return to bonds________, and the demand for money ________.
25. 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

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