Assuming That Velocity Is Stable, If Real GDP Grows by 10

question 8

Multiple Choice

Assuming that velocity is stable, if real GDP grows by 10 percent this year, and if the money supply does not change this year, how does the price level and nominal GDP change?

• A) The price level and nominal GDP will not change.
• B) The price level will not change but nominal GDP will grow by 10 percent.
• C) The price level will decrease by 10 percent and nominal GDP will stay the same.
• D) The price level and nominal GDP will increase by 10 percent.

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Definitions:

Exchange Rate Risk

The risk that international trade dealings will earn less than expected because of movement in exchange rates.

Economic Risk

The possibility of loss caused by macroeconomic or market conditions, such as changes in interest rates or recessions.

Forward Rate

The agreed upon exchange rate for a currency transaction that will occur at a future date.

Spot Price

The current market price at which an asset can be bought or sold for immediate delivery.