Which of the Following Predictions Can Be Made Using the Growth

question 57

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 money supply grows at a faster rate than growth in Y_P, there will be inflation.
• B) If the money supply grows at a slower rate than growth in Y_P, there will be a decrease in the inflation rate.
• C) If the money supply grows at the same rate as growth in Y_P, the price level will fall and there will be deflation.
• 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.

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Definitions:

Coupon Bond

A bond that pays the holder a fixed interest payment (coupon) periodically until the maturity date, when the principal amount is reimbursed.

Coupon Bond

A type of bond that offers the holder periodic interest payments, with the principal repaid at maturity.

Yield To Maturity

The total return anticipated on a bond if the bond is held until it matures.

Semi-Annually

Occurring twice a year, typically used in finance to describe payment intervals or adjustments.