Question 1

Suppose that for a given year money growth is 11 percent, real GDP growth is 6 percent, and the inflation rate is 3 percent. According to the growth version of the quantity equation, velocity growth would be
A) -2 percent.
B) 0.6 percent.
C) 1.67 percent.
D) 5 percent.

Accepted Answer

The answer of Suppose that for a given year money...

Question 2

Suppose that for a given year money growth is 5 percent, real GDP growth is 2 percent, and the inflation rate is 5 percent. According to the growth version of the quantity equation, velocity growth would be
A) 0 percent.
B) 2 percent.
C) 8 percent.
D) 12.5 percent.

Accepted Answer

According to the growth version of the quantity equation: MV = PY
where M is the money supply, V is velocity, P is the price level, and Y is real GDP.

The equation can be rewritten as: 
%ΔM + %ΔV = %ΔP + %ΔY

Given:
%ΔM = 5% 
%ΔP = 5%
%ΔY = 2%

To find %ΔV, we can rearrange the equation: 
%ΔV = %ΔP + %ΔY - %ΔM

%ΔV = 5% + 2% - 5% = 2%

Therefore, velocity growth would be 2 percent.

Question 3

Suppose that for a given year money growth is 12 percent, real GDP growth is 3 percent, and velocity growth is 2 percent. According to the growth version of the quantity equation, the inflation rate would be
A) -3 percent.
B) 9 percent.
C) 11 percent.
D) 12 percent.

Accepted Answer

According to the growth version of the quantity equation: 
%ΔM + %ΔV = %ΔP + %ΔY
Plugging in the given values: 
12% + 2% = %ΔP + 3%
%ΔP = 14% - 3% = 11%
Therefore, the inflation rate would be 11 percent. The correct answer is (C).

Question 4

The quantity equation
A) determines foreign exchange rates.
B) describes the amount of required reserves held in banks.
C) links money, velocity, prices, and real output.
D) links money supply and interest rates.

Accepted Answer

The quantity equation, also known as the equation of exchange, is MV = PQ, where M is the money supply, V is the velocity of money, P is the price level, and Q is the real output. It shows the relationship between these four variables and is used to analyze monetary policy and inflation.

Question 5

If the velocity of money is 6 and the money supply is $4 trillion, then nominal GDP is
A) $24 trillion.
B) $2 trillion.
C) $1.5 trillion.
D) $0.667 trillion.

Accepted Answer

Nominal GDP = Money supply x Velocity of money. 
Nominal GDP = $4 trillion x 6 = $24 trillion.

Question 6

If the velocity of money is 4 and the money supply is $16 trillion, then nominal GDP is
A) $64 trillion.
B) $12 trillion.
C) $4 trillion.
D) $0.25 trillion.

Accepted Answer

The equation of the quantity theory of money is MV = PY. Here, M is the money supply, V is the velocity of money, P is the price level, and Y is real GDP. Therefore, nominal GDP (P x Y) can be calculated as M x V. If V is 4 and M is $16 trillion, then nominal GDP would be $64 trillion (16 x 4 = 64). Thus, the correct answer is A).

Question 7

Suppose that for a given year money growth is 10 percent, real GDP growth is 8 percent, and velocity is constant. According to the growth version of the quantity equation, the inflation rate would be
A) -2 percent.
B) 1.25 percent.
C) 2 percent.
D) 18 percent.

Accepted Answer

The growth version of the quantity equation is MV = PQ, where M is the money supply, V is velocity, P is the price level, and Q is real GDP. We can rearrange this equation to solve for the inflation rate (π):

π = (M/V) - (Q/Q)

Plugging in the values given:

π = 0.1 - 0.08 = 0.02

Therefore, the inflation rate would be 2 percent. The correct choice is C.

Question 8

If nominal GDP is $16 trillion and the money supply is $4 trillion, then the velocity of money is
A) 0.25.
B) 4.
C) 12.
D) 20.

Accepted Answer

The velocity of money is calculated as the ratio of nominal GDP to the money supply, which in this case is $16 trillion / $4 trillion = 4.

Question 9

Suppose that for a given year money growth is 3 percent, real GDP growth is 1 percent, and the inflation rate is 2 percent. According to the growth version of the quantity equation, velocity growth would be
A) 0 percent.
B) 2 percent.
C) 3 percent.
D) 4 percent.

Accepted Answer

The growth version of the quantity equation (MV=PY) can be rearranged to show the relationship between money growth (M), velocity growth (V), inflation (P), and real GDP growth (Y). In this case, if money growth is 3 percent, real GDP growth is 1 percent, and inflation is 2 percent, the equation implies that velocity growth must be 0 percent to balance the equation, as the sum of real GDP growth and inflation equals the money growth rate.

Question 10

Velocity of money =
A) (nominal GDP) x (money supply).
B) (nominal GDP) / (money supply).
C) (nominal GDP) / (money demand).
D) (nominal GDP) + (money demand).

Accepted Answer

The velocity of money is calculated by dividing the nominal GDP by the money supply. This measures the number of times that the average unit of currency is used to purchase goods and services within a given time period.

Question 11

If the velocity of money is 2 and nominal GDP is $10 trillion, then the money supply is
A) $0.2 trillion.
B) $5 trillion.
C) $8 trillion.
D) $12 trillion.

Accepted Answer

The equation of quantity theory of money is: MV = PY, where M is the money supply, V is the velocity of money, P is the price level, and Y is real GDP. 
Rearranging the equation to solve for M, we get M = PY/V.

Given, V = 2 and PY = nominal GDP = $10 trillion. 
Therefore, M = $10 trillion / 2 = $5 trillion.

Hence, the correct answer is B.

Question 12

If the velocity of money is high
A) interest rates fall.
B) people hold onto money for a long period of time.
C) people hold onto money for a short period of time.
D) interest rates rise.

Accepted Answer

When the velocity of money is high, it means that money is changing hands quickly and frequently. This indicates that people are not holding onto money for a long period of time, as they are using it to make purchases and investments. Therefore, the correct answer is C - people hold onto money for a short period of time.

Question 13

The growth version of the quantity equation
A) determines foreign exchange rates.
B) links the growth rates of money, velocity, prices and real output.
C) links money, velocity, prices, and real output.
D) determines the growth of the money supply.

Accepted Answer

The growth version of the quantity equation, also known as the equation of exchange, links the growth rates of money, velocity, prices, and real output. It is expressed as MV = Py, where M is the money supply, V is the velocity of money, P is the price level, and y is real output. This equation suggests that changes in the growth rates of any of these variables can affect the others.

Question 14

-Using Figure 16.1, describe the two choices the fed has with respect to changing the money supply if unions negotiate higher industry wages for its members, and as a result, higher rates of inflation emerge. Assume before the wage increase, the economy is at point c.

Accepted Answer

The answer of 
-Using Figure 16.1, describe the two choices...

Question 15

If, on average, the velocity of money is low
A) interest rates fall.
B) people hold onto money for a long period of time.
C) people hold onto money for a short period of time.
D) interest rates rise.

Accepted Answer

When the velocity of money is low, it means that people are holding onto money for a long period of time and there is less circulation of money in the economy. This results in lower economic activity and slower growth. Therefore, people tend to hold onto money for a longer period of time when the velocity is low.

Question 16

Suppose that for a given year money growth is 12 percent, real GDP growth is 4 percent, and velocity is constant. According to the growth version of the quantity equation, the inflation rate would be
A) 0.67 percent.
B) 3 percent.
C) 8 percent.
D) 16 percent.

Accepted Answer

The growth version of the quantity equation is given by the formula: Inflation Rate = Money Growth Rate - Real GDP Growth Rate, assuming velocity is constant. Therefore, the inflation rate = 12% - 4% = 8%.

Question 17

If nominal GDP is $12 trillion and the money supply is $8 trillion, then the velocity of money is
A) 0.667.
B) 1.5.
C) 4.
D) 8.

Accepted Answer

The velocity of money is calculated as the ratio of nominal GDP to the money supply, which is $12 trillion / $8 trillion = 1.5.

Question 18

If the velocity of money is 4 and nominal GDP is $24 trillion, then the money supply is
A) $28 trillion.
B) $20 trillion.
C) $6 trillion.
D) $0.167 trillion.

Accepted Answer

The money supply can be calculated using the formula for the velocity of money: Velocity of Money = Nominal GDP / Money Supply. Rearranging the formula to solve for the money supply gives us Money Supply = Nominal GDP / Velocity of Money. Plugging in the given values, we get Money Supply = $24 trillion / 4 = $6 trillion.

Question 19

The quantity equation is expressed as
A) MV = Py.
B) MP = Vy.
C) M/V = P/y.
D) M+V = P+y.

Accepted Answer

The quantity equation, also known as the equation of exchange, is expressed as MV = Py, where M is the money supply, V is the velocity of money, P is the price level, and y is the real output. This equation shows the relationship between the elements of the economy and is based on the principle that the total amount spent on goods and services (MV) must be equal to the total value of goods and services produced (Py).

Question 20

The rate at which the money supply turns over in economic transactions in a given year to purchase nominal GDP is known as
A) money demand.
B) the money multiplier.
C) the velocity of money.
D) the discount rate.

Accepted Answer

The rate at which the money supply is used to make purchases in the economy is known as the velocity of money. It is calculated as the nominal GDP divided by the money supply. The other options, such as money demand, the money multiplier, and the discount rate, are not directly related to the velocity of money.

Quiz 16: The Dynamics of Inflation and Unemployment

Suppose that for a given year money growth is 11 percent, real GDP growth is 6 percent, and the inflation rate is 3 percent. According to the growth version of the quantity equation, velocity growth would be

Suppose that for a given year money growth is 5 percent, real GDP growth is 2 percent, and the inflation rate is 5 percent. According to the growth version of the quantity equation, velocity growth would be

Suppose that for a given year money growth is 12 percent, real GDP growth is 3 percent, and velocity growth is 2 percent. According to the growth version of the quantity equation, the inflation rate would be

The quantity equation

If the velocity of money is 6 and the money supply is $4 trillion, then nominal GDP is

If the velocity of money is 4 and the money supply is $16 trillion, then nominal GDP is

Suppose that for a given year money growth is 10 percent, real GDP growth is 8 percent, and velocity is constant. According to the growth version of the quantity equation, the inflation rate would be

If nominal GDP is $16 trillion and the money supply is $4 trillion, then the velocity of money is

Suppose that for a given year money growth is 3 percent, real GDP growth is 1 percent, and the inflation rate is 2 percent. According to the growth version of the quantity equation, velocity growth would be

Velocity of money =

If the velocity of money is 2 and nominal GDP is $10 trillion, then the money supply is

If the velocity of money is high

The growth version of the quantity equation

-Using Figure 16.1, describe the two choices the fed has with respect to changing the money supply if unions negotiate higher industry wages for its members, and as a result, higher rates of inflation emerge. Assume before the wage increase, the economy is at point c.

If, on average, the velocity of money is low

Suppose that for a given year money growth is 12 percent, real GDP growth is 4 percent, and velocity is constant. According to the growth version of the quantity equation, the inflation rate would be

If nominal GDP is $12 trillion and the money supply is $8 trillion, then the velocity of money is

If the velocity of money is 4 and nominal GDP is $24 trillion, then the money supply is

The quantity equation is expressed as

The rate at which the money supply turns over in economic transactions in a given year to purchase nominal GDP is known as