Empirical Studies Done on Money Demand Established That

question 19

Multiple Choice

Empirical studies done on money demand established that

• A)the demand for real money balances increases with increases in the interest rate
• B)the effects of income and interest rate changes on the demand for real money balances is more pronounced after a significant lag
• C)real money demand increases proportionately with the level of income
• D)people have money illusion since nominal money demand tends to increase less than proportionately with increases in the price level
• E)people will change their money holdings drastically if they expect a transitory change in interest rates

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Definitions:

Last Dividend

The most recent dividend payment made to shareholders by a company.

Dividend Growing

The increase in the amount of dividend payouts by a company over time.

Current Yield

The annual income (interest or dividends) divided by the current price of the security, often used to assess the return on investment in bonds.

Required Rate

The minimum expected rate of return by investors for providing capital to a company, often used in valuing investments.