Question

176) The quantity theory of money:

176) A) is a representation of how a change in money supply affects the price level in an economy.

B) is an exact representation of how the economy behaves in the long-run.

C) assumes that the ratio of money supply to nominal GDP decreases over time.

D) assumes that the ratio of money supply to nominal GDP increases over time.

177) The ratio of nominal GDP to money supply is referred to as:

177) A) velocity. B) Fischer's ratio. C) inflation ratio. D) price index.

178) The quantity theory of money implies that:

178) A) growth rate of money demand = growth rate of money supply.

B) growth rate of money supply = growth rate of nominal GDP.

C) growth rate of currency in circulation = growth rate of the price level

D) growth rate of money supply = growth rate of real GDP.

179) According to the quantity theory of money, if the growth rate of money supply is 6% and the growth rate of real GDP is 9%, then the growth rate of nominal GDP in the economy will be:

179) A) 6%. B) 3%. C) 9%. D) 15%.

180) Consider an economy where the growth rate of real GDP is 6% and the annual rate of inflation is 2%. If the quantity theory of money holds, the growth rate of money supply in the economy will be:

180) A) 8%. B) 2%. C) 6%. D) 4%.

Answer 1

Answer:

176]

Correct option: A] is a representation of how a change in money supply affects the price level in an economy.

The quantity theory of money is a representation of how a change in money supply affects the price level in an economy.

Explanation:

The quantity theory of money equation is

MV = PY

Where, M = Money supply

            V = Velocity of money

             P = Price level

             Y = Real GDP

This equation shows is money supply changes, all else constant, Price will change.

177]

Correct option: A] velocity

The ratio of nominal GDP to money supply is referred to as velocity

The quantity theory equation is

MV = PY

V = PY / M

Where, PY is nominal GDP

M is money supply

V is velocity of money

178]

Correct option: B] growth rate of money supply = growth rate of nominal GDP.

179]

Correct option: A] 6%

the Growth rate of money supply = Growth rate of Nominal GDP, So

the growth rate of nominal GDP in the economy will be 6%

180]

Correct option:A] 8%

Growth rate of money supply = Inflation rate + Growth rate of real GDP = 2% + 6% = 8%