Suppose the Full-Employment Level of Real GDP Is Increasing at a Rate

question 63

Multiple Choice

Suppose the full-employment level of real GDP is increasing at a rate of 3% per period and the money supply is growing at a 3% rate. Using the equation of exchange, what is the value of the long-run inflation rate, assuming constant velocity?

• A) 6%
• B) 3%
• C) 1%
• D) 0%

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Definitions:

Average Returns

The mean financial return of an investment over a given time period, calculated by summing the returns of each period and dividing by the number of periods.

Confidence Index

A measure indicating the level of confidence investors have in the stock market, often based on bond yield comparisons.

Corporate Bonds

Debt securities issued by corporations to finance their operations, projects, or expansion plans.

Intermediate-grade Bonds

Bonds rated in the medium quality range by rating services, indicating moderate risk, situating them between high-grade and high-yield or junk bonds.