Which of the Following Predictions Can Be Made Using the Growth

question 5

Multiple Choice

Which of the following predictions can be made using the growth rates associated with the equation of exchange, given that velocity is stable and that the economy moves to its potential output (Y_P) in the long run?

• A) If the growth rate in Y_P exceeds the money growth rate, there will be inflation.
• B) If the money growth rate is less than the growth rate in Y_P, there will be deflation.
• C) If the money supply grows at the same rate as growth in Y_P, the price level will grow at a constant rate.
• D) If the money supply grows at the same rate as growth in Y_P, the price level will also increase at the same rate as growth in Y_P.

---

Definitions:

Point A

A specific location or position in any defined space or context, often used in diagrams to represent particular points in economic models or graphs.

Point B

Often used in graphs or models to denote a specific location, point, or situation being analyzed or referenced.

Opportunity Cost

The cost of missing out on the next best alternative when making a decision.

Point A

Typically used as a reference point in diagrams or illustrations in economics or geometry.