1. Which of the following is necessarily true?

A. velocity of M1 is larger than velocity of M2

B. velocity of M2 is larger than velocity of M1

C. velocity of M3 is larger than velocity of M2

D. none of the above

2. Since 1980, which of the follow measures of velocity has trended downward on balance?

A. velocity of M1

B. velocity of M2

C. velocity of M3

D. all of the above

3. Suppose you spend $12,000 annually, deposit $1,000 on the first of each month in your checking account, and draw it down at a constant rate until it is exhausted on the last day of each month. Your transactions velocity is:

A. 12

B. 24

C. 48

D. none of the above

4. If we write a demand function for money as M/P = ZYarb, then which of the following may be interpreted as the interest elasticity of demand for real money balances?

A. Z

B. r

C. b

D. none of the above

5. Because PT always exceeds PY, it follows that:

A. monetary policy is more powerful than fiscal policy

B. fiscal policy is more powerful than monetary policy

C. V_Y always exceeds V_T

D. V_T always exceeds V_Y

6. If nominal GDP = $8000 billion and the price level = 2.0, while the money stock = $2000 billion, then velocity must equal:

A. 2

B. 4

C. 6

D. 8

7. If the demand for money increases relative to income, then:

A. the velocity of money will rise

B. the velocity of money will fall

C. the velocity of money will do nothing--it is independent of the demand for money

D. the velocity of money may rise or fall

8. The overall shape of the money demand curve is probably predominantly caused by:

A. the transactions demand for money

B. the precautionary demand for money

C. the pecuniary demand for money

D. none of the above

9. For a stimulative fiscal policy measure financed by the sales of bonds to the public to be effective:

A. velocity must rise

B. velocity must fall

C. velocity must be stable and predictable

D. none of the above are true

10. The removal of Regulation Q, which had banned the payment of interest on checkable deposits, probably:

A. increased the velocity of money

B. decreased the velocity of money

C. had no effect on the velocity of money

11. A general macroeconomic downturn generally causes velocity of money to:

A. decline, or at least rise at a below-trend rate

B. increase at an above-trend rate

C. remain unchanged, or rise at a rate equal to the trend

D. none of the above are generally true--the behavior of velocity in recession is almost totally unpredictable

Answers: 1A, 2A, 3B, 4C, 5D, 6B, 7B, 8A, 9A, 10B, 11A.