ECO4223 EXAM 3 STUDY GUIDE
2026/2027 COMPLETE QUESTIONS
WITH VERIFIED CORRECT ANSWERS ||
100% GUARANTEED PASS
<NEWEST VERSION>
1. The quantity theory of money is a theory of how:
a. the money supply is determined
b. the real value of aggregate income is determined
c. interest rates are determined
d. the nominal value of aggregate income is determined - ANSWER ✔
the nominal value of aggregate income is determined
2. The average number of times that a dollar is spent in buying the total amount
of final goods and services produced during a given time period is known as:
a. velocity
b. spending multiplier
c. gross national product
d. the money multiplier - ANSWER ✔ velocity
3. If the money supply is $500 and nominal income is $3,000 the velocity of
money is:
a. 1/60
b. 60
c. 1/6
d. 6 - ANSWER ✔ 6
4. A tax cut initially
, a. increases consumption expenditure by an amount that is less than the
value of the tax cut.
b. increases consumption expenditure by an amount greater than the tax
cut.
c. increases consumption expenditure by an amount equal to the tax cut .
d. has no effect on consumption expenditure - ANSWER ✔ increases
consumption expenditure by an amount that is less than the value of
the tax cut.
5. If the consumption function is expressed as C = a + mpc * YD, then a
represents
a. expenditure multiplier
b. disposable income
c. autonomous consumer expenditure
d. marginal propensity to consume - ANSWER ✔ autonomous consumer
expenditure
6. What is the formula for the aggregate expenditure multiplier?
1. 1/(1+mpc)
2. mpc(1+mpc)
3. 1/(1-mpc)
4. mpc / (1-mpc) - ANSWER ✔ 1/(1-mpc)
7. If the Keynesian consumption function is C = 10 + 0.8Yd then, when
disposable income is $1000, what is the marginal propensity to consume?
a. 0.8
b 0.81
c. 810
d. 800 - ANSWER ✔ 0.8
8. The Keynesian framework indicates that government can play an important
role in determining aggregate output by:
a. only changing taxes
, b. both changing the level of government spending and by changing
taxes.
c. the government cannot play a role determining aggregate output.
d. only by changing the level of government spending. - ANSWER ✔
both changing the level of government spending and by changing
taxes.
9. Quantity Theory of Money - ANSWER ✔ Interest rates have no effect on
the demand for money.
Nominal Income is determined by the quantity of money.
10.Velocity of Money - ANSWER ✔ the rate of turnover of money
V = GDP/Money Supply
11.Equation of Exchange - ANSWER ✔ MV = PY
12.Quantity Theory of Money Demand - ANSWER ✔ From Equation of
Exchange MV = PY
M = PY/V
When money market is in equilibrium M=Md
Md = PY/V
13.Keynes Liquidity Preference Theory - ANSWER ✔ Transactions Motive:
this component of demand for money is proportional to income.
Precautionary Motive: this component of demand for money is proportional
to income
, Speculative Motive: Why would people choose to hold their wealth as
money instead of bonds.
14.Speculative Motive - ANSWER ✔ Md/P = f(i,Y)
When interest rates are low demand for money is high.
When interest rates start high, demand for money is low.
Negative relationship between interest rates and demand for money.
15.Baumol & Tobin Analysis - ANSWER ✔ Argued that even money balances
held for transaction purposes are sensitive to interest rates.
There is an opportunity cost to holding any money, the interest rate.
16.Friedman's Modern Quantity Theory of Money - ANSWER ✔ Permanent
Income = Avg Income over working career
Md/p = f(Yp)
Interest rates have no effect on demand for money because of competition
between banks, only a function of permanent income.
17.Keynes Aggregate Demand - ANSWER ✔ Yd = C + I + G + NX
Consumption
Investment
2026/2027 COMPLETE QUESTIONS
WITH VERIFIED CORRECT ANSWERS ||
100% GUARANTEED PASS
<NEWEST VERSION>
1. The quantity theory of money is a theory of how:
a. the money supply is determined
b. the real value of aggregate income is determined
c. interest rates are determined
d. the nominal value of aggregate income is determined - ANSWER ✔
the nominal value of aggregate income is determined
2. The average number of times that a dollar is spent in buying the total amount
of final goods and services produced during a given time period is known as:
a. velocity
b. spending multiplier
c. gross national product
d. the money multiplier - ANSWER ✔ velocity
3. If the money supply is $500 and nominal income is $3,000 the velocity of
money is:
a. 1/60
b. 60
c. 1/6
d. 6 - ANSWER ✔ 6
4. A tax cut initially
, a. increases consumption expenditure by an amount that is less than the
value of the tax cut.
b. increases consumption expenditure by an amount greater than the tax
cut.
c. increases consumption expenditure by an amount equal to the tax cut .
d. has no effect on consumption expenditure - ANSWER ✔ increases
consumption expenditure by an amount that is less than the value of
the tax cut.
5. If the consumption function is expressed as C = a + mpc * YD, then a
represents
a. expenditure multiplier
b. disposable income
c. autonomous consumer expenditure
d. marginal propensity to consume - ANSWER ✔ autonomous consumer
expenditure
6. What is the formula for the aggregate expenditure multiplier?
1. 1/(1+mpc)
2. mpc(1+mpc)
3. 1/(1-mpc)
4. mpc / (1-mpc) - ANSWER ✔ 1/(1-mpc)
7. If the Keynesian consumption function is C = 10 + 0.8Yd then, when
disposable income is $1000, what is the marginal propensity to consume?
a. 0.8
b 0.81
c. 810
d. 800 - ANSWER ✔ 0.8
8. The Keynesian framework indicates that government can play an important
role in determining aggregate output by:
a. only changing taxes
, b. both changing the level of government spending and by changing
taxes.
c. the government cannot play a role determining aggregate output.
d. only by changing the level of government spending. - ANSWER ✔
both changing the level of government spending and by changing
taxes.
9. Quantity Theory of Money - ANSWER ✔ Interest rates have no effect on
the demand for money.
Nominal Income is determined by the quantity of money.
10.Velocity of Money - ANSWER ✔ the rate of turnover of money
V = GDP/Money Supply
11.Equation of Exchange - ANSWER ✔ MV = PY
12.Quantity Theory of Money Demand - ANSWER ✔ From Equation of
Exchange MV = PY
M = PY/V
When money market is in equilibrium M=Md
Md = PY/V
13.Keynes Liquidity Preference Theory - ANSWER ✔ Transactions Motive:
this component of demand for money is proportional to income.
Precautionary Motive: this component of demand for money is proportional
to income
, Speculative Motive: Why would people choose to hold their wealth as
money instead of bonds.
14.Speculative Motive - ANSWER ✔ Md/P = f(i,Y)
When interest rates are low demand for money is high.
When interest rates start high, demand for money is low.
Negative relationship between interest rates and demand for money.
15.Baumol & Tobin Analysis - ANSWER ✔ Argued that even money balances
held for transaction purposes are sensitive to interest rates.
There is an opportunity cost to holding any money, the interest rate.
16.Friedman's Modern Quantity Theory of Money - ANSWER ✔ Permanent
Income = Avg Income over working career
Md/p = f(Yp)
Interest rates have no effect on demand for money because of competition
between banks, only a function of permanent income.
17.Keynes Aggregate Demand - ANSWER ✔ Yd = C + I + G + NX
Consumption
Investment
