Consider the Money Demand Function That Takes the Form (M/P)d=kY

question 151

Multiple Choice

Consider the money demand function that takes the form (M/P) d=kY, where M is the quantity of money, P is the price level, k is a constant, and Y is real output. If the money supply is growing at a 10 percent rate, real output is growing at a 3 percent rate, and k is constant, what is the average velocity of money in this economy?

• A)3 percent
• B)7 percent
• C)10 percent
• D)13 percent

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Definitions:

Average Fixed Cost

The total fixed costs of production divided by the quantity of output produced, showing how fixed costs change with output levels.

Average Variable Cost

The total variable cost divided by the number of units produced, reflecting the variable cost of producing each additional unit.

Total Variable Cost Curve

A graph that shows the relationship between total variable cost and the level of a firm’s output.

Factor Prices

The prices of the inputs used in the production process, such as labor, capital, and land.