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:

Competition

The rivalry among businesses to attract consumers and gain market share, driving innovation and efficiency.

Independently Acting

The behavior of an entity that makes decisions based on its own interest and circumstances rather than being influenced by others.

Market System

An economic system in which decisions regarding investment, production, and distribution are guided by the price signals created by the forces of supply and demand.

Private Property

A legal designation for the ownership of property by individuals or businesses, not by the state or government.