Oxford University Press | Online Resource Centre

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Question 01

The difference between the monetary aggregate M1 and M2 is equal to the value of what?

a) Commodity money

b) Sight deposits

c) Savings deposits

d) Certificates of deposits

Question 02

Which of the following assets are not held by central banks to "back their currencies"?

a) Debt of governments.

b) Debt of private households.

c) Debt of foreign central banks.

d) Gold holdings.

Question 03

The income elasticity of the demand for money is?

a) Negative and approximately equal to one in the long-run.

b) Positive and approximately equal to one in the long-run.

c) Near zero in the short-run and significantly negative in the long-run.

d) Zero in the long-run.

Question 04

If the real money supply is increased in the short-run, then the equilibrium nominal interest rate will (1)_______ and the demand for real money balances will (2)______.

a) (1) fall; (2) remain unchanged.

b) (1) fall; (2) increase.

c) (1) rise; (2) remain unchanged.

d) (1) rise; (2) increase.

Question 05

If the cost of converting assets from money to interest-bearing forms should decline in the short-run, then the equilibrium nominal interest rate will (1)_______ and the demand for real money balances will (2)______.

a) (1) fall; (2) remain unchanged.

b) (1) fall; (2) decrease.

c) (1) rise; (2) decrease.

d) (1) rise; (2) increase.

Question 06

In the short-run the velocity of circulation:

a) increases if interest rates increase.

b) does not change significantly.

c) determines the transactions costs of shifting money between accounts.

d) decreases if the price level increases.

Question 07

Considering the money market in isolation, if real GDP increases in the short-run, then the equilibrium nominal interest rate will (1)______ and the real money stock will (2)_________.

a) (1) rise, (2) decrease.

b) (1) fall; (2) remain unchanged.

c) (1) rise; (2) remain unchanged.

d) (1) fall; (2) increase.

Question 08

The real exchange rate is constant when the nominal exchange rate appreciates at a rate equal to:

a) the rate of inflation plus the real rate of interest.

b) the nominal rate of interest, assuming the Fisher Principle holds.

c) the difference between the rate of growth of the money supply and the rate of inflation.

d) the difference between the nominal and real interest rates.

e) the difference between the foreign and domestic inflation rates.

Oxford University Press, Online Resource Centre, Chapter 08.

Chapter 08

Instructions