The Quantity Theory of Money Assumes That

question 85

Multiple Choice

The quantity theory of money assumes that

• A)velocity varies inversely with interest rates.
• B)if velocity equals six, the Fed can increase nominal GDP by 30 percent if it increases the money supply by 5 percent.
• C)changes in the money supply affect output but not prices.
• D)changes in velocity are so small that velocity can be considered constant.

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Definitions:

Bond's Value

The present worth of a bond's future interest payments and its repayment of principal at maturity, adjusted for current market interest rates.

9-Year Duration

A metric indicating the sensitivity of a bond's price to changes in interest rates, represented here as the bond having an average response over a nine-year period.

Default Risks

The likelihood that a borrower will fail to meet the obligations of paying back a loan or interest payments.

Conversion Ratios

A specific figure or ratio that determines how convertible securities, like convertible bonds, can be exchanged for other types of securities, typically the common stock of a company.