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Multiple Choice Quiz
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1
As credit and debit cards are more widely used, we should expect that
A)more money balances will be held in M1
B)more money balances will be held in M2
C)less money balances will be held in M2
D)less money balances will be held in M1, but those held in M2 will remain unchanged
2
Which of the following would lead to increased money balances in M1?
A)more purchases made on the internet
B)more credit card purchases
C)lower inflationary expectations
D)all of the above
3
A financial asset is considered less liquid if
A)it has a longer maturity
B)it is issued by the government rather than a large corporation such as Microsoft
C)it earns a lower yield
D)none of the above
4
The Baumol-Tobin square-root formula for money demand applies primarily to
A)the transactions motive of holding money
B)the precautionary motive of holding money
C)the speculative motive of holding money
D)the store-of-value motive of holding money
5
According to the Baumol-Tobin square-root formula, the amount of money balances held for transaction will
A)increase as interest rates increase
B)decrease as the cost of money transactions increases
C)increase less than proportionately to increases in income
D)all of the above
6
The speculative demand for money
A)will always increase proportionately to the precautionary demand for money
B)will always increase proportionately to the transactions demand for money
C)is affected by changes in bond yields but not equity yields
D)cannot be easily separated from money demand for transaction or precaution
7
If the expected growth rate in real GDP for next year is 2.5%, we can anticipate that the demand for M1 money holdings will
A)also increase by 2.5%
B)increase by more than 2.5%
C)increase by less than 2.5%
D)remain constant
8
The income velocity of money is defined as
A)real money supply divided by real GDP
B)nominal money supply divided by nominal GDP
C)nominal GDP divided by nominal money supply
D)national income divided by the currency outstanding
9
If the government increases the level of government purchases, we can expect that
A)interest rates and the income velocity of money will both increase
B)interest rates and the income velocity of money will both decrease
C)interest rates will increase but the income velocity of money will decrease
D)interest rates will increase but the income velocity of money will remain the same
10
According to the quantity theory of money, in the long run
A)the behavior of velocity is hard to predict
B)a change in money supply will be followed by a proportional change in the price level
C)an increase in nominal money supply will result in a proportional decrease in velocity
D)an increase in nominal money supply will result in a proportional increase in velocity





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