Reading 24: Money, the Price Level, and Inflation - LOS i ～ class, quantity, states, black, money

mayanfang1

Q1. The quantity theory of money states that:

A)  money supply multiplied by velocity equals real output.

B)  an increase in the money supply will cause a proportional increase in prices.

C)  a decrease in the money supply will cause a proportional increase in prices.

Q2. Which of the following statements is least accurate? According to the quantity theory of money:

A)  velocity and real output are not determined by the money supply.

B)  velocity is determined by institutional factors.

C)  the price level is equal to the quantity of output divided by the money supply.

Q3. Which of the following relationships in regard to the equation of exchange is least accurate?

A)  Nominal GDP = Price × Money Supply.

B)  Money × Velocity = Money Supply × Velocity.

C)  Nominal GDP = Money Supply × Velocity = Price × Real Output.

Q4. Which of the following is the most accurate definition of the velocity of money? The velocity of money is the:

A)  GDP of a country divided by its price level.

B)  GDP of a country divided by its money supply.

C)  money supply of a country divided by its price level.

 

mayanfang1

答案和详解如下：

Q1. The quantity theory of money states that:

A)  money supply multiplied by velocity equals real output.

B)  an increase in the money supply will cause a proportional increase in prices.

C)  a decrease in the money supply will cause a proportional increase in prices.

Correct answer is B)

The quantity theory is in no way related to fiscal policy. Money supply multiplied by velocity must equal nominal gross domestic product (GDP).

Q2. Which of the following statements is least accurate? According to the quantity theory of money:

A)  velocity and real output are not determined by the money supply.

B)  velocity is determined by institutional factors.

C)  the price level is equal to the quantity of output divided by the money supply.

Correct answer is C)

The equation of exchange states that MV = PY, so P = MV/Y.

Both remaining statements are true. According to the quantity theory of money, an increase in the money supply will cause a proportionate increase in prices, while velocity and real output are determined by institutional factors and are independent of the money supply.

Q3. Which of the following relationships in regard to the equation of exchange is least accurate?

A)  Nominal GDP = Price × Money Supply.

B)  Money × Velocity = Money Supply × Velocity.

C)  Nominal GDP = Money Supply × Velocity = Price × Real Output.

Correct answer is A)  

The equation of exchange holds that: Money Supply × Velocity = Nominal GDP = Price × Real Output.

Q4. Which of the following is the most accurate definition of the velocity of money? The velocity of money is the:

A)  GDP of a country divided by its price level.

B)  GDP of a country divided by its money supply.

C)  money supply of a country divided by its price level.

Correct answer is B)

Velocity is the average number of times per year each dollar is used to buy goods and services (velocity = nominal GDP / money). Therefore, the money supply multiplied by velocity must equal nominal GDP. The equation of exchange must hold with velocity defined in this way. Letting money supply = M, velocity = V, price = P, and real output = Y, the equation of exchange may be symbolically expressed as: MV = PY.

 

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