Asked by Devin Larski on Mar 10, 2024
Verified
In an economy in which velocity is constant and real output grows at an average rate of 4 percent per year,a 4 percent average rate of growth in the money supply would result in:
A) a constant price level.
B) a slowly increasing price level.
C) a rapidly increasing price level.
D) constant real GDP.
E) constant nominal GDP.
Velocity
The rate at which money circulates or is exchanged in an economy, influencing inflation and economic activity.
Money Supply
The total amount of money available in an economy, including cash, deposits, and other forms of liquidity.
Real Output
The production of goods and services valued at constant prices, thus removing the effect of inflation.
- Grasp the principles of the quantity theory of money and its influence on inflation and an increase in nominal GDP.
Verified Answer
JR
Jamie RoderickMar 10, 2024
Final Answer :
A
Explanation :
If velocity is constant and real output grows at an average rate of 4 percent per year, a 4 percent average rate of growth in the money supply would result in a constant price level. This is because the increase in money supply is matched by the increase in real output, leading to no significant changes in the overall price level.
Learning Objectives
- Grasp the principles of the quantity theory of money and its influence on inflation and an increase in nominal GDP.