Which of the Following Predictions Can Be Made Using the Growth

question 2

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 %∆M = %∆ Y_P , then %∆P = %∆M.
• B) If %∆M > %∆ Y_P , then %∆P > 0.
• C) If %∆M > %∆ Y_P , then %∆P > %∆M.
• D) If %∆M = %∆ Y_P , then %∆P < 0.

---

Definitions:

Temporary Working Capital

Additional working capital needed to support the fluctuating levels of business activity.

Cyclical Nature

Describes a pattern that repeats in cycles, often used in economics to describe the fluctuations in the economy over periods of expansions and recessions.

Seasonal

Pertaining to or occurring during a particular season of the year, often implying changes in business activities, market demand, or weather patterns that recur annually.

Working Capital Management

The practice of managing a company's short-term assets and liabilities to ensure it has sufficient liquidity to run its operations efficiently.