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Quantity Theory of Money Test #1

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3. The Paper has ten Questions
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1 / 10

If the money supply is $3 trillion and nominal GDP is $12 trillion, the income velocity of money is :

1/4

1/3

3

4

2 / 10

If aggregate output is constant while the money supply and its velocity both double, the equation of exchange predicts that the price level will :

double

remain constant

fall by half

quadruple (rise by a factor of 4)

3 / 10

The Classical Quantity Theory of Money was based on assumptions that :

prices and real GDP were fixed.

real GDP and velocity were constant.

prices and real GDP grew as the money supply rose.

doubling the money supply would double real GDP.

4 / 10

Velocity of money is : 

The speed of circulation of income in year

Nominal GDP/(Money supply)

Real GDP/ (Money supply)

Both (A) and (B)

Nominal GDP/(Money supply), because Velocity is the speed by which money (M1 or M2 definitions) changes hands in transaction of final goods and services (Nominal GDP) in a year in an economy. It is defined as NGDP/(Money supply)

Nominal GDP/(Money supply), because Velocity is the speed by which money (M1 or M2 definitions) changes hands in transaction of final goods and services (Nominal GDP) in a year in an economy. It is defined as NGDP/(Money supply)

5 / 10

Quantity theory of money implies that :

The rate of growth in the quantity of money determines the inflation rate

Money supply is controlled by the Central Bank

Money functions as a store of value

M * V = P * Y

6 / 10

Given the following information :

Quantity of Money (M) = Rs. 4,800

Nominal GDP = Rs. 96,000

Real GDP = Rs. 48,000

What is the Velocity of money in this country

V = 10

V = 20

V = 100

V = 40

7 / 10

Given the following information :

Quantity of Money (M) = Rs. 4,800

Nominal GDP = Rs. 96,000

Real GDP = Rs. 48,000

What is the Price Level

P = Rs. 4

P = Rs. 2

P = Rs. 1/2

Insufficient Information

8 / 10

Consider the following statements

A : Fisher’s view that velocity is fairly constant in the short run transforms the equation of exchange into the quantity theory money, which states that nominal income is determined solely by movements in the quantity of money.

B : For the classical economists, the quantity theory of money provided an explanation of movements in the price level.

 

Both A and B are True

Both A and B are False

A is True and B is False

A is False and B is True

9 / 10

The equation of exchange states that

when M increases, Y must increase in same proportion

when M increases, V must increase in same proportion

when M increases, Nominal GDP (P*Y) must increase in same proportion

None of the above

10 / 10

You are given the following data on an economy in 2001 and 2007:
2001              2007

Money Supply                      200                300

Real GDP                               100                 150   

Price Level                             10                     ?

The velocity of circulation is the same in both years.

According to the quantity theory of money what would be the value of the price level in 2007?

 

20

15

10

None of the above

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Course Introduction

Chapter 2 : National Income Accounting

Chapter 5 : Money

Previous Year Question Papers : PYQ’s

You Tube Shorts

Chapter 1 : Introduction to Macroeconomics

Duration of Video Lectures : 110 Minutes

Based Upon Chapter 1 Abel, Bernanke & Croushore

Topics Covered

1.1 ►Macroeconomics, Long Run Economic Growth, Business Cycles, Labour Force, Unemployment, Types of Unemployment, Inflation, Nominal and Real Interest Rate,

1.2 ►Open & Closed Economy, Macro Economic Policy, Positive & Normative Economics, Classical’s Versus Keynesians

Chapter 3 : Balance of Payment

Duration of Video Lectures : 44 Minutes

Based Upon Chapter 5.1 Abel, Bernanke & Croushore

Topics Covered

3.1 ►Balance of Payments Accounting, The Current Account, The Capital & Financial Account, The Official Settlements Account, Net Foreign Assets and Balance of Payments Accounts

Chapter 4 : Economic Survey

Duration of Video Lectures : 60 Minutes

Based Upon Economic Survey 2022-23

Topics Covered

4.1 ►Basic Concepts of National Accounts Aggregates

Chapter 5 : Money

Duration of Video Lectures : 77 Minutes

Based Upon Chapter 7.1 Abel, Bernanke & Croushore

Topics Covered

5.1 ►Definition of Money, Functions of Money, Types of Money, Properties of Money,

5.2 ►Monetary Aggregates

Chapter 6 : Quantity Theory of Money

Duration of Video Lectures : 71 Minutes

Based Upon Chapter 4.1 Froyen

Topics Covered

6.1 ►The Equation of Exchange, Implications of QTM, QTM Numericals

6.2 ►Cambridge Approach to Quantity Theory,

6.3 ►The Classical Aggregate Demand Curve,

Chapter 7 : Financial Markets

Duration of Video Lectures : 202 Minutes

Based Upon Chapter 4 Blanchard

Topics Covered

7.1 ►The Demand for Money, Factors Affecting Money Demand,

7.2 ►Determining the Interest Rate, Open Market Operations, Relation Between Price of Bond and Interest Rate,

7.3 ►Financial Intermediaries, Balance Sheet of Banks, Demand and Supply of Central Bank Money,

7.4 ►Money Multiplier, High Powered Money, Numerical Problems

Chapter 8 : Classical Macroeconomics

Duration of Video Lectures : 65 Minutes

Based Upon Chapter 3 Froyen

Topics Covered

8.1 ►Classical Revolution, Aggregate Demand,

8.2 ►Production Functions, Marginal Product of Labour,

8.3 ►Employment, Labour Demand & Labour Supply,

8.4 ►Equilibrium Output and Employment, the Classical Aggregate Supply Curve,

Chapter 9 : Classical Macroeconomics

Duration of Video Lectures : 65 Minutes

Based Upon Chapter 4 Froyen

Topics Covered

9.1 ►Classical Aggregate Demand Curve,

9.2 ►The Classical Theory of Interest Rate,

9.3 ►Policy Implications of Classical Equilibrium Model, Fiscal Policy & Monetary Policy

Chapter 10 : Income & Spending

Duration of Video Lectures : 117 Minutes

Based Upon Chapter 9 Dornbusch, Fischer & Startz

Topics Covered

10.1 ►Aggregate Demand and Equilibrium Output,

10.2 ►The Consumption Function & Aggregate Demand,

10.3 ►The Multiplier in Two Sector Economy,

10.4 ►Equilibrium Output and the Multiplier in Three Sector Economy,

10.5 ►The Budget, The Full Employment Budget Surplus

Chapter 11 : IS – LM Model

Duration of Video Lectures : 230 Minutes

Based Upon Chapter 10 Dornbusch, Fischer & Startz

Topics Covered

11.1 ►The Goods Market and the IS Curve, Graphical & Algebraic Derivation of the IS Curve, Slope of IS Curve, Shifts in the IS Curve,

11.2 ►The Money Market and the LM Curve, Graphical & Algebraic Derivation of the LM Curve, Slope of LM Curve, Shifts in the LM Curve,

11.3 ►Simultaneous Equilibrium in the Goods and the Money Market,

11.4 ►Deriving the Aggregate Demand Schedule, Fiscal Policy Multiplier & Monetary Policy Multiplier

Chapter 12 : Monetary & Fiscal Policy

Duration of Video Lectures : 304 Minutes

Based Upon Chapter 11 Dornbusch, Fischer & Startz

Topics Covered

12.1 ► Monetary Policy, The Transmission Mechanism, The Liquidity Trap, The Classical Case,

12.2 ► Fiscal Policy & Crowding Out, Effect of Expansionary Fiscal Policy under Liquidity Trap and Under Classical Case, Accommodating Monetary Policy,

12.3 ► Policy Mix,