Suppose the Velocity of Circulation Increases by 2 Percent and Potential

question 72

Multiple Choice

Suppose the velocity of circulation increases by 2 percent and potential GDP grows by 2 percent. The trend inflation rate will equal zero if the quantity of money grows by

• A) 0 percent.
• B) 2 percent.
• C) 4 percent.
• D) -2 percent.

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Definitions:

Full Employment

Full employment refers to a situation in the economy where all available labor resources are being used in the most efficient way possible, virtually eliminating involuntary unemployment.

Inefficient Outcome

A situation where resources are not allocated in the most valuable or productive way, often resulting from market failures or externalities.

Production Possibilities Frontier

A graphical representation that shows the combination of two goods that can be produced using all resources efficiently.

Inefficient Levels

Situations where resources are not being used in the best possible way from an economic perspective, leading to potential waste or losses.