Handout 9-
[Q1] The quantity theory of money is a theory of how
A) the money supply is determined.
B) interest rates are determined.
C) the nominal value of aggregate income is determined.
D) the real value of aggregate income is determined.
[Q2] If the money supply is $500 and nominal income is $3,000, the velocity of money is
A) 1/60.
B) 1/6.
C) 6.
D) 60.
[Q3] In Irving Fisher´s quantity theory of money, velocity was determined by
A) interest rates.
B) real GDP.
C) the institutions in an economy that affect individuals´ transactions.
D) the price level.
[Q4] If interest rates do not affect the demand for money, then velocity is ________ likely to be ________.
A) more; stable
B) more; unstable
C) more; procyclical
D) less; stable
[Q5] The speculative demand for money may not exist because
A) banks now pay interest on some types of checkable deposits.
B) there are alternative riskless assets paying higher returns than the return on money.
C) the transactions demand can be shown to depend on interest rates.
D) government regulations have eliminated risk in the financial markets.
[Q6] Keynes´ model of the demand for money suggests that velocity is ________ related to ________.
A) positively; interest rates
B) negatively; interest rates
C) positively; bond values
D) positively; stock prices
[Q7] Because inflation was not a serious problem during the Great Depression, Keynes's analysis assumed_________
A) that unemployment also was not a problem.
B) that the money supply was fixed.
C) that the price level was fixed.
D) that monetary policy is not effective.
[Q8] Everything else held constant, if total consumption increases from $600 to $800 because of an increase of disposable income of $400, then the mpc is equal to_________.
A) 0.2
B) 0.4
C) 0.5
D) 0.6
[Q9] In the Keynesian framework, as long as output is ________ the equilibrium level, unplanned inventory investment will remain ________ and firms will continue to lower production.
A) below; negative
B) above; negative
C) below; positive
D) above; positive
[Q10] (Spring 2009) If autonomous net exports decrease by 250 and the mpc is 0.75, equilibrium aggregate output_____________.
A) increases by 1000.
B) increases by 750.
C) decreases by 750.
D) decreases by 1000.
[Q11] Everything else held constant, if aggregate output is to the ________ of the IS curve, then there is an excess ________ of goods which will cause aggregate output to fall.
A) right; supply
B) right; demand
C) left; supply
D) left; demand
[Q12] Assume that disposible income equals $1000 and the mpc equals 0.6. If total consumption equal $800, then the autonomous consumption is equal to
A) $0
B) $200
C) $800
D) $1000