Which of the Following Predictions Can Be Made Using the Growth

question 50

Multiple Choice

Which of the following predictions can be made using the growth rates associated with the equation of exchange, given that velocity is stable and that the economy moves to its potential output (Y_P)
In the long run?

• A)If the growth rate in Y_P exceeds the money growth rate, there will be inflation.
• B)If the money growth rate is less than the growth rate in Y_P, there will be deflation.
• C)If the money supply grows at the same rate as growth in Y_P, the price level will grow at a constant rate.
• D)If the money supply grows at the same rate as growth in Y_P, the price level will also increase at the same rate as growth in Y_P.

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Definitions:

Decreasing-cost Industry

An industry wherein an increase in the scale of production leads to a reduction in the average cost of production.

Input Prices

The costs associated with purchasing the raw materials, labor, and other factors of production required to produce goods or services.

Industry Expands

The process of growth within a specific sector of the economy, characterized by an increase in output, sales, or the number of operators.

Average Total Cost Curve

A graphical representation showing the average total cost of producing different quantities of output.