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Quiz Instructions

Final Exam: Money and Banking (ECON30005)

Semester 2, 2021.

This is an open book exam. You may use any materials but must complete the exam independently from other people.

The exam contributes 70 percent to your final grade. There are three parts to the exam. Section A contains 10 multiple choice questions with each question worth one point. Section B contains 5     True/False/Uncertain questions, each worth 4 points. Section C contains 5 questions each worth 8 points. Answer all questions.

The exam is three hours and 30 minutes long. Late submissions are allowed 30 minutes after the end of the exam. Late submissions may incur a penalty.

Academic Integrity Declaration

By commencing and/or submitting this assessment I agree that I have read and understood the

Universitys policy on academic integrity. (https://academicintegrity.unimelb.edu.au/#online- exams)

I also agree that:

1. Unless paragraph 2 applies, the work I submit will be original and solely my own work (cheating);

2. I will not seek or receive any assistance from any other person (collusion) except where the work is for a designated collaborative task, in which case the individual contributions will be indicated; and,

3. I will not use any sources without proper acknowledgment or referencing (plagiarism).

4. Where the work I submit is a computer program or code, I will ensure that:

a. any code I have copied is clearly noted by identifying the source of that code at the start of the program or in a header file or, that comments inline identify the start and end of the copied      code; and

b. any modifications to code sourced from elsewhere will be commented upon to show the nature of the modification.

Question 1

1 pts

In the Baumol-Tobin theory of money demand, if expenditure on transactions is      increasing 5 percent a year and money demand is constant, we should expect a(n) _______ in interest rates of ______  percent per year. Assume that other factors    are unchanged.

decrease, 10

increase, 5 increase, 10 uncertain without further information


Question 2

1 pts

Which of the following was not observed in Prisoner of War camps, according to

Radford?

Debasement of the currency

Gresham's Law

The price level measured in cigarettes fluctuating inversely with the supply of cigarettes

None of the above


Question 3

1 pts


Consider the model that Geanakoplos presents in his work on leverage cycles. Assume that investors are able endowed with 2 units of money and 1 unit of the    financial asset. Assume that the asset pays a return of 1 in the good state of the   world and a return of 0.2 in the bad state of the world. Assume all other aspects of

p* = h* + 0.2(1-h*) and h* = (1-h*)/p*

p* = h* + 0.2(1-h*) and h* = (2-h*)/p*

p* = h* + 0.2(1-h*) and h* = 2(1-h*)/p*

None of the above


Question 4

1 pts

Which of the following is observed by McCandless and Weber?

In the long run, there is almost no correlation between the real interest rate and real output

In the long run, there is almost no correlation between the growth rate of money and the growth rate of real output

In the long run, there is almost no correlation between the nominal interest rate and real output

None of the above


Question 5

1 pts

If the central banks wants to lower the cash rate in the interbank market it should

purchase government securities

sell government securities

engage in quantitative easing by purchasing mortgage backed securities

none of the above


Question 6

1 pts


Which of the following is a motive for holding money in the Baumol-Tobin model of money demand?

Transactions motive

Precautionary motive

Speculative motive

None of the above


Question 7

1 pts


Which of the following is not true?

As a source of funds, businesses rely more on indirect finance than direct finance

As a source of funds, businesses rely more on internal finance than external finance

As a source of funds, financial intermediaries are the most important source of direct finance

Larger firms are more able to access direct finance than smaller firms