Classical Economist David Hume Observed That as the Money Supply

question 178

Multiple Choice

Classical economist David Hume observed that as the money supply expanded after gold discoveries it took some time for prices to rise and in the meantime the economy enjoyed higher employment and production. This is inconsistent with monetary neutrality because monetary neutrality would mean that

• A)neither prices nor production should have risen.
• B)production should have risen, but prices should not have.
• C)the prices should have risen, but production should not have changed.
• D)the prices and production should both have fallen.

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Definitions:

Accrual Accounting

An accounting method where revenue and expenses are recorded when they are earned or incurred, regardless of when the cash is received or paid.

Incurred

Describes expenses that have been realized or experienced by a business or individual.

Matching Principle

An accounting principle that expenses should be recorded in the same period as the revenues they helped to generate, to provide a more accurate picture of financial performance.

Deferrals

Accounting transactions that involve recognition of revenues or expenses in a period different from when they are actually received or paid, to match revenues with expenses in the appropriate period.