If the Income Elasticity of Demand for M2 Is Close

question 30

Multiple Choice

If the income elasticity of demand for M2 is close to +1, then

• A)demand for M2 will more than double if the level of income doubles
• B)M2 is not a good intermediate target for monetary policy
• C)the income velocity of M2 will vary greatly with changes in income
• D)the income velocity of M2 will not be affected by interest rate changes
• E)changes in income should not significantly affect the income velocity of M2

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Definitions:

Direct Labor Hours

The total time workers spend producing a product or providing a service, directly tied to the production process.

Contribution Margin Ratio

A financial metric that shows what percentage of sales revenue is available to cover fixed costs and generate profit after variable costs have been paid.

Variable Costs

Costs that change in proportion to the level of activity or volume of goods produced by a business.

Sales Decrease

A drop in the volume or amount of products or services sold by a company within a specific period.