If Real GDP Grows by 3 Percent, the Velocity of Circulation

question 22

Multiple Choice

If real GDP grows by 3 percent, the velocity of circulation does not change, and the quantity of
Money grows by 3 percent, then in the long run the inflation rate is

• A)3 percent.
• B)6 percent.
• C)-3 percent.
• D)-6 percent.
• E)0 percent.

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Definitions:

Opportunity Costs

The penalty of not opting for the next superior alternative while making a decision.

Total Revenues

The total amount of income generated by the sale of goods or services related to the company's primary operations.

Economic Profits

The surplus or profit earned by a firm over and above the total costs of production, including both explicit and implicit costs, signifying an above-normal return.

Accounting Profits

The financial gain calculated by subtracting total explicit costs from total revenue, using generally accepted accounting principles (GAAP).