Suppose the Velocity of Money Is 8, the Amount of Money

question 147

Multiple Choice

Suppose the velocity of money is 8, the amount of money in circulation is $200 billion, the index of prices is 150, and real GDP is $10 billion. According to the strict quantity theory of money, if the money supply doubled to $400 billion,

• A) the velocity of money would fall to 4.
• B) the index of prices would increase to 300.
• C) real GDP would increase to $20 billion.
• D) the velocity of money would rise to 16.

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Definitions:

Cash Budget

A financial plan that estimates cash inflows and outflows over a specific period of time, often used by businesses to manage cash flow and ensure liquidity.

Minimum Cash Balance

The smallest amount of cash that a company or individual aims to hold in order to meet expected and unexpected needs.

Loan Interest

The amount charged by a lender to a borrower for the use of borrowed money, calculated as a percentage of the principal.

Master Budget

A comprehensive financial planning document that consolidates all of a company's individual budgets, including sales, production, and cash budgets.