FNAN 320 EXAM 3 QUESTIONS WITH VERIFIED ANSWERS

FNAN 320 EXAM 3 QUESTIONS WITH VERIFIED
ANSWERS


1. Irving Fisher's equation of exchange is expressed as

a.
MS × PL = V × Y.

b.
MS/V = PL × Y.

c.
MS × Y = PL × V.

d.
V = (PL × Y)/MS. - Answers - d.
V = (PL × Y)/MS.

2. If GDP is $20 trillion and the money supply is $4 trillion, what is the velocity of
money?

a.
2

b.
5

c.
16

d.
80 - Answers - b.
5

3. Irving Fisher's equation of exchange led to the conclusion that the __________ is a
function of the level of __________ income in the economy.

a.
demand for money; real

b.
demand for money; nominal

, c.
supply of money; real

d.
supply of money; nominal - Answers - b.
demand for money; nominal

. John Maynard Keynes argued that people demand money for three reasons. What are
these three reasons?

a.
Transactions motive, precautionary motive, and speculative motive

b.
Quantity motive, speculative motive, and philanthropic motive

c.
Transactions motive, precautionary motive, and familial motive

d.
Precautionary motive, speculative motive, and wealth motive - Answers - a.
Transactions motive, precautionary motive, and speculative motive

5. Alistair tells a friend that he likes to deposit his entire paycheck into his checking
account just in case prices fall. This is an example of the __________ demand for
money.

a.
inflationary

b.
transactions

c.
speculative

d.
precautionary - Answers - d.
precautionary

6. If the goal of monetary policy is to keep interest rates stable, the Federal Reserve's
response to increases in the demand for money will be to

a.
decrease the supply of money.