Question 1

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 ________.
A)increase; increase
B)increase; decrease
C)decrease; increase
D)decrease; decrease

Accepted Answer

Keynes argued that when interest rates are low, people expect them to rise in the future, which would decrease bond prices (since bond prices move inversely to interest rates). Therefore, anticipating lower bond prices, people would demand more money (liquidity preference) instead of holding bonds, leading to an increase in the quantity of money demanded.

Question 2

The portfolio theories of money demand state that the demand for real money balances is ________ related to income and ________ related to the nominal interest rate.
A)positively; negatively
B)positively; positively
C)negatively; negatively
D)negatively; positively

Accepted Answer

The portfolio theories of money demand suggest that as income increases, individuals demand more real money balances for transactions and other purposes, indicating a positive relationship. Conversely, as the nominal interest rate increases, holding money becomes more costly (since individuals forego interest they could earn on other assets), leading to a negative relationship between the demand for real money balances and the nominal interest rate.

Question 3

Keynes argued that when interest rates were high relative to some normal value,people would expect bond prices to ________,so the quantity of money demanded would ________.
A)increase; increase
B)increase; decrease
C)decrease; decrease
D)decrease; increase

Accepted Answer

The answer of Keynes argued that when interest rates were...

Question 4

Keynes's theory of the demand for money is consistent with ________ movements in ________.
A)countercyclical; velocity
B)procyclical; velocity
C)countercyclical; expectations
D)procyclical; expectations

Accepted Answer

The answer of Keynes's theory of the demand for money...

Question 5

The theory of portfolio choice indicates that factors affecting the demand for money include
A)income.
B)nominal interest rate.
C)riskiness of money.
D)all the above.

Accepted Answer

The theory of portfolio choice states that the demand for money is influenced by factors such as income, nominal interest rate and the riskiness of money. Therefore, all of the above options are correct.

Question 6

According to Keynes's theory of liquidity preference,velocity increases when
A)income increases.
B)wealth increases.
C)brokerage commissions increase.
D)interest rates increase.

Accepted Answer

The answer of According to Keynes's theory of liquidity preference,velocity...

Question 7

The portfolio theories of money demand state that when income (and therefore,wealth)is higher,the demand for the money asset will ________ and the demand for real money balances will be ________.
A)rise; higher
B)rise; lower
C)fall; higher
D)fall; lower

Accepted Answer

According to portfolio theories of money demand, as income (and thus wealth) increases, individuals are likely to hold a larger portion of their wealth in liquid form (money), leading to a higher demand for the money asset and consequently, a higher demand for real money balances.

Question 8

As interest rates rise,the expected absolute return of money ________,money's expected return relative to bonds ________.
A)does not change; decrease
B)rises; decrease
C)does not change; increase
D)falls; decrease

Accepted Answer

As interest rates rise, the expected absolute return of money does not change because the return on holding money (not investing it) is essentially zero. However, money's expected return relative to bonds decreases because bonds, which pay interest, become more attractive as their yields increase with rising interest rates.

Question 9

Because interest rates have substantial fluctuations,the ________ theory of the demand for money indicates that velocity has substantial fluctuations as well.
A)classical
B)Cambridge
C)liquidity preference
D)Pigouvian

Accepted Answer

The liquidity preference theory, developed by John Maynard Keynes, states that individuals prefer to hold their wealth in liquid, easily accessible assets such as money. Therefore, changes in interest rates affect the demand for money and, consequently, the velocity of money. As interest rates fluctuate, people may choose to hold or spend their money differently, causing velocity to also fluctuate. The classical and Pigouvian theories do not directly address the demand for money, while the Cambridge equation suggests a stable relationship between money supply, price level, and real income, but does not address interest rates or velocity fluctuations.

Question 10

Keynes's theory of the demand for money is consistent with
A)countercyclical movements in velocity.
B)a constant velocity.
C)procyclical movements in velocity.
D)a relatively stable velocity.

Accepted Answer

The answer of Keynes's theory of the demand for money...

Question 11

Keynes's liquidity preference theory indicates that the demand for money is ________ related to ________.
A)negatively; interest rates
B)positively; interest rates
C)negatively; income
D)negatively; wealth

Accepted Answer

According to Keynes's liquidity preference theory, the demand for money is negatively related to interest rates. This means that as interest rates increase, the demand for money decreases, and as interest rates decrease, the demand for money increases.

Question 12

The Keynesian demand for real balances can be expressed as A)M^d = f(i,Y). B)M^d/P = f(i). C)M^d/P = f(Y). D)M^d/P = f(i,Y).

Accepted Answer

The demand for real balances can be expressed as a function of both interest rates and income (Y), so option D which includes both variables is the most appropriate choice. The formula M^d/P represents real balances (S) in terms of money supply (M), velocity of money (U), price level (P), and nominal balances (d), all of which are constant. Therefore, the only variables that can affect the demand for real balances are interest rates and income levels.

Question 13

Keynes's 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

Accepted Answer

The answer of Keynes's model of the demand for money...

Question 14

Keynes's theory of the demand for money implies that velocity is
A)not constant but fluctuates with movements in interest rates.
B)not constant but fluctuates with movements in the price level.
C)not constant but fluctuates with movements in the time of year.
D)a constant.

Accepted Answer

Keynes's theory of the demand for money argues that the demand for money is influenced by the interest rate. As interest rates fluctuate, people will adjust their holding of money balances (i.e. demand for money) which will impact velocity. Therefore, velocity is not constant but fluctuates with movements in interest rates.

Question 15

Keynes's model of the demand for money suggests that velocity is
A)constant.
B)positively related to interest rates.
C)negatively related to interest rates.
D)positively related to bond values.

Accepted Answer

The answer of Keynes's model of the demand for money...

Question 16

Keynes's liquidity preference theory indicates that the demand for money is
A)constant.
B)positively related to interest rates.
C)negatively related to interest rates.
D)negatively related to bond values.

Accepted Answer

According to Keynes's liquidity preference theory, the demand for money is negatively related to interest rates. This means that as interest rates increase, people are less willing to hold onto their money and more willing to invest it, thus decreasing the demand for money. Conversely, as interest rates decrease, people are more willing to hold onto their money and less willing to invest it, thus increasing the demand for money.

Question 17

Keynes's liquidity preference theory indicates that the demand for money
A)is purely a function of income,and interest rates have no effect on the demand for money.
B)is purely a function of interest rates,and income has no effect on the demand for money.
C)is a function of both income and interest rates.
D)is a function of both government spending and income.

Accepted Answer

According to Keynes's liquidity preference theory, the demand for money is a function of both income and interest rates. The theory suggests that people hold money not just for transaction purposes but also as a store of value. As interest rates rise, the opportunity cost of holding money increases, leading to a decrease in the demand for money. Similarly, an increase in income leads to an increased demand for money due to the increased transaction demand. Therefore, both income and interest rates affect the demand for money.

Question 18

Explain the Keynesian theory of money demand.What motives did Keynes think determined money demand? What are the two reasons why Keynes thought velocity could not be treated as a constant?

Accepted Answer

The answer of Explain the Keynesian theory of money demand.What...

Question 19

The theory of portfolio choice indicates that factors affecting the demand for money include
A)income.
B)nominal interest rate.
C)liquidity of other assets.
D)all the above.

Accepted Answer

According to the theory of portfolio choice, the demand for money is influenced by various factors like income, nominal interest rates, and the liquidity of other assets. Hence, all the above options are correct.

Question 20

The theory of portfolio choice indicates that higher interest rates make money ________ desirable,and the demand for real money balances ________.
A)less; falls
B)more; falls
C)less; rises
D)more; rises

Accepted Answer

According to the theory of portfolio choice, higher interest rates make money less desirable because it means the opportunity cost of holding money (in terms of foregone interest earnings) is higher. As a result, the demand for real money balances falls, since people prefer to hold less money and put their funds into higher-yielding assets like bonds or stocks.

Quiz 19: Quantity Theory,inflation and the Demand for Money

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 .

The portfolio theories of money demand state that the demand for real money balances is related to income and related to the nominal interest rate.

Keynes argued that when interest rates were high relative to some normal value,people would expect bond prices to ,so the quantity of money demanded would .

Keynes's theory of the demand for money is consistent with movements in .

The theory of portfolio choice indicates that factors affecting the demand for money include

According to Keynes's theory of liquidity preference,velocity increases when

The portfolio theories of money demand state that when income (and therefore,wealth) is higher,the demand for the money asset will and the demand for real money balances will be .

As interest rates rise,the expected absolute return of money ,money's expected return relative to bonds .

Because interest rates have substantial fluctuations,the ________ theory of the demand for money indicates that velocity has substantial fluctuations as well.

Keynes's theory of the demand for money is consistent with

Keynes's liquidity preference theory indicates that the demand for money is related to .

The Keynesian demand for real balances can be expressed as

Keynes's model of the demand for money suggests that velocity is related to .

Keynes's theory of the demand for money implies that velocity is

Keynes's model of the demand for money suggests that velocity is

Keynes's liquidity preference theory indicates that the demand for money is

Keynes's liquidity preference theory indicates that the demand for money

Explain the Keynesian theory of money demand.What motives did Keynes think determined money demand? What are the two reasons why Keynes thought velocity could not be treated as a constant?

The theory of portfolio choice indicates that factors affecting the demand for money include

The theory of portfolio choice indicates that higher interest rates make money desirable,and the demand for real money balances .

Quiz 19: Quantity Theory,inflation and the Demand for Money

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 ________.

The portfolio theories of money demand state that the demand for real money balances is ________ related to income and ________ related to the nominal interest rate.

Keynes argued that when interest rates were high relative to some normal value,people would expect bond prices to ________,so the quantity of money demanded would ________.

Keynes's theory of the demand for money is consistent with ________ movements in ________.

The theory of portfolio choice indicates that factors affecting the demand for money include

According to Keynes's theory of liquidity preference,velocity increases when

The portfolio theories of money demand state that when income (and therefore,wealth) is higher,the demand for the money asset will ________ and the demand for real money balances will be ________.

As interest rates rise,the expected absolute return of money ________,money's expected return relative to bonds ________.

Because interest rates have substantial fluctuations,the ________ theory of the demand for money indicates that velocity has substantial fluctuations as well.

Keynes's theory of the demand for money is consistent with

Keynes's liquidity preference theory indicates that the demand for money is ________ related to ________.

The Keynesian demand for real balances can be expressed as

Keynes's model of the demand for money suggests that velocity is ________ related to ________.

Keynes's theory of the demand for money implies that velocity is

Keynes's model of the demand for money suggests that velocity is

Keynes's liquidity preference theory indicates that the demand for money is

Keynes's liquidity preference theory indicates that the demand for money

Explain the Keynesian theory of money demand.What motives did Keynes think determined money demand? What are the two reasons why Keynes thought velocity could not be treated as a constant?

The theory of portfolio choice indicates that factors affecting the demand for money include

The theory of portfolio choice indicates that higher interest rates make money ________ desirable,and the demand for real money balances ________.

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 .

The portfolio theories of money demand state that the demand for real money balances is related to income and related to the nominal interest rate.

Keynes argued that when interest rates were high relative to some normal value,people would expect bond prices to ,so the quantity of money demanded would .

Keynes's theory of the demand for money is consistent with movements in .

The portfolio theories of money demand state that when income (and therefore,wealth) is higher,the demand for the money asset will and the demand for real money balances will be .

As interest rates rise,the expected absolute return of money ,money's expected return relative to bonds .

Keynes's liquidity preference theory indicates that the demand for money is related to .

Keynes's model of the demand for money suggests that velocity is related to .

The theory of portfolio choice indicates that higher interest rates make money desirable,and the demand for real money balances .