the economics of money, banking, and financial markets

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21.7 Appendix 21.2 Empirical Evidence on the Demand for Money

1. 
   

   In one of the earliest studies on the link between interest rates and money demand using
   United States data, James Tobin concluded that the demand for money is ____.
   A) sensitive to interest rates
   B) not sensitive to interest rates
   C) not sensitive to changes in income
   D) not sensitive to changes in bond values
   Answer: A
   Diff: 1 Type: MC Page Ref: 21.2A- 1
   Skill: Recall
   Objective List: Appendix: Empirical Evidence on the Demand for Money

   
   


2. 
   

   Starting in 1974, the conventional M1 money demand function began to ____.
   A) severely underpredict the demand for money
   B) severely overpredict the demand for money
   C) predict more precisely the demand for money
   D) do none of the above
   Answer: B
   Diff: 2 Type: MC Page Ref: 21.2A- 3
   Skill: Recall
   Objective List: Appendix: Empirical Evidence on the Demand for Money

   
   


3. 
   

   Starting in 1974, the conventional M1 money demand function began to severely ____
   the demand for money. Stephen Goldfeld labeled this phenomenon "the case of the missing
   ____."
   A) underpredict; velocity
   B) overpredict; velocity
   C) underpredict; money
   D) overpredict; money
   Answer: D
   Diff: 3 Type: MC Page Ref: 21.2-A- 3
   Skill: Recall
   Objective List: Appendix: Empirical Evidence on the Demand for Money

   
   


4. 
   

   Conventional money demand functions tended to ____ money demand in the middle and
   late 1970s, and ____ velocity beginning in 1982.
   A) overpredict; overpredict
   B) overpredict; underpredict
   C) underpredict; overpredict
   D) underpredict; underpredict
   Answer: A
   Diff: 1 Type: MC Page Ref: 21.2A- 3
   Skill: Recall
   Objective List: Appendix: Empirical Evidence on the Demand for Money