Choose the correct answer of the following: 1. Because money growth and inflatio
ID: 1211254 • Letter: C
Question
Choose the correct answer of the following:
1.Because money growth and inflation move together:
a. Avoiding high inflation means avoiding low money growth.
b. To avoid sustained inflation, a central bank must be concerned with money growth.
c. Inflation causes money growth.
d. Money growth rates equal inflation rates.
2.What does the Quantity Theory of Money assume about the relationship of M and Y?
a. The quantity theory assumes that changes in M will have a small impact on Y.
b. The quantity theory assumes that changes in M will have a large impact on Y.
c. The quantity theory assumes that changes in M cannot change Y.
d. The quantity theory assumes that changes in M will have a indeterminate impact on Y.
3.The quantity equation:
a. Indicates that real GDP and velocity of money are positively related when all other things equal.
b. Gives the relationship between the quantity of money and the velocity of money.
c. Is not very useful as monetary theory.
d. Indicates that the quantity of money must decrease when price increases.
4.Historical data about the velocity implies that:
a. The velocity of money is stable in the short run.
b. The velocity of money is stable in the long run.
c. There is little volatility in the velocity of money in the short run.
d. None of the answers given are correct.
5.People hold money:
a. Only to hold wealth.
b. Only to make transactions.
c. To know the value of goods and to hold wealth.
d. To make transactions and to hold wealth.
Explanation / Answer
1.
b. To avoid sustained inflation, a central bank must be concerned with money growth.
2.
b. The quantity theory assumes that changes in M will have a large impact on Y.
3.
a. Indicates that real GDP and velocity of money are positively related when all other things equal.
4.
c. There is little volatility in the velocity of money in the short run.
5.
d. To make transactions and to hold wealth.