Question 1

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

Accepted Answer

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

Question 2

The Keynesian demand for real balances can be expressed as

Accepted Answer

The Keynesian demand for real balances is expressed as Mᵈ/P = f(i,Y), where Mᵈ is the demand for money, P is the price level, i is the interest rate, and Y is the income. This formula indicates that the demand for real money balances depends on both the interest rate and income.

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 ________.

Accepted Answer

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

Question 4

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

Accepted Answer

The liquidity preference theory of the demand for money developed by John Maynard Keynes focuses on the desire of individuals to hold money as a store of value in addition to its medium of exchange role. According to this theory, the demand for money is a function of the interest rate, income level, and the degree of uncertainty in the economy. Therefore, if interest rates have substantial fluctuations, the demand for money will also fluctuate, leading to substantial changes in velocity. The classical and Cambridge theories of the demand for money are more focused on the transactional role of money and assume a stable velocity of money. The Pigouvian theory is related to externalities and does not directly apply to the demand for money.

Question 5

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 ________.

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 6

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

Accepted Answer

According to Keynes's liquidity preference theory, the demand for money is negatively related to interest rates. This refers to the idea that as interest rates increase, the demand for money decreases, and as interest rates decrease, the demand for money increases. This relationship is based on the idea that individuals and businesses will hold onto less money if they can receive higher returns on other investments, and will hold onto more money if the returns on investments are low.

Question 7

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

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 8

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

Accepted Answer

According to Keynes's liquidity preference theory, the demand for money is negatively related to interest rates. As interest rates increase, people prefer to hold less money and more interest-earning assets such as bonds. Conversely, when interest rates decrease, people prefer to hold more money and reduce their holdings of interest-earning assets. This is because the opportunity cost of holding money (i.e. the foregone interest income) is lower when interest rates are low.

Question 9

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 ________.

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 10

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

Accepted Answer

According to the theory of portfolio choice, higher interest rates make holding money (as opposed to investing in other assets) less desirable because the opportunity cost of holding money increases. As a result, people will demand fewer real money balances and invest more in other assets.

Question 11

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 12

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.

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 13

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

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

Accepted Answer

Keynes's theory of the demand for money states that the demand for money is influenced by interest rates, and as interest rates change, people may hold more or less money. Therefore, velocity is not constant but fluctuates with movements in interest rates.

Question 15

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

Accepted Answer

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

Question 16

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

Accepted Answer

Keynes's theory of the demand for money suggests that as income rises, the demand for money tends to rise as well, as people have more money to spend. This implies a procyclical movement in velocity, as faster economic growth leads to a higher velocity of money.

Question 17

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

Accepted Answer

Keynes's liquidity preference theory suggests that demand for money is determined by both income and interest rates. As income increases, people tend to hold more money for transactions and speculative purposes. However, the opportunity cost of holding money in terms of foregone interest income increases as interest rates rise, leading to a decrease in the demand for money. Therefore, both income and interest rates affect the demand for money according to this theory.

Question 18

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

Accepted Answer

The theory of portfolio choice suggests that individuals desire to hold wealth in different forms, including money, bonds, and stocks, to spread and manage risk. Thus, the factors affecting the demand for money include income, as it determines how much money people have to hold for transactions and precautionary needs, nominal interest rate, as it affects the opportunity cost of holding money versus other assets, and the riskiness of money, as people prefer to hold more liquid and safer forms of money in uncertain times.

Question 19

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

Accepted Answer

The theory of portfolio choice suggests that factors affecting the demand for money include income, nominal interest rate, and the liquidity of other assets. These factors all play a role in a person's decision to hold money versus investing in other assets. Higher income may lead to a higher demand for money, while a higher nominal interest rate may decrease the demand for money as people are incentivized to invest in higher-yielding assets. Additionally, if other assets are more liquid than money, this may decrease the demand for money as people may prefer to hold assets that can be quickly converted into cash if needed.

Question 20

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

Accepted Answer

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

Quiz 22: Quantity Theory, inflation and the Demand for Money

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

The Keynesian demand for real balances can be expressed as

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 .

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

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 .

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

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

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

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

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

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

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

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

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

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

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

Quiz 22: Quantity Theory, inflation and the Demand for Money

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

The Keynesian demand for real balances can be expressed as

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 ________.

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

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 ________.

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

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

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

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

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

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

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

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

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

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

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

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 .

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 .

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

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

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

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

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