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Exam 20: Money Demand

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Question 21

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Velocity was notably unstable starting in the

A) 1930s.
B) 1940s.
C) 1950s.
D) none of the above.

E) B) and C)
F) A) and B)

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Question 22

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The theory of the demand for money described originally by Friedman is often called the liquidity preference theory.

A) True
B) False

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Question 23

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According to Friedman, a decrease in expected inflation would not affect the demand for money if the _____ fell by the same amount.

According to Friedman's model, what is the one factor directly related to money demand?

According to Friedman's theory, how would money demand change during the stock market bubble and collapse?

Solve the quantity equation for money demand to find an expression for velocity. Explain the meaning of velocity using your equation.

According to Friedman, the returns on stocks and money tend to move in opposite directions.

According to Keynes, income affects the _____ demand for money.

Interest rates and the speculative demand for money are inversely related.

What is the velocity of a dollar?

According to Friedman's theory, how would an increase in oil prices, which is both inflationary and recessionary, affect money demand?

Friedman's theory of money demand is more complex than Keynes's.

According to whose model does velocity change with interest rates?

According to William Baumol and James Tobin, the precautionary demand for money is _____ related to interest rates, and the speculative demand for money is _____ related to interest rates.

If the yields (and expected return) on bonds fall, what else would be necessary for Friedman's and Keynes's theories of money demand to have the same qualitative prediction?

If the price level rises, the demand for real money balances rises.

People holding money in anticipation that bond yields will rise is an example of

What happened during the 1970s that caused Friedman's monetary theory to crack?

According to the Friedman theory, if the difference between the return on stocks and money rises, the demand for real money balances will rise.

People holding money in case they need to fix their car is an example of