According to the Quantity Equation, If Velocity Is Constant at Two

question 57

Multiple Choice

According to the quantity equation, if velocity is constant at two and real GDP is constant at 10 000, then, if the money supply is increased from 6250 to 6500, the price level:

• A)increases to 1.25
• B)increases to 1.3
• C)increases to 1.5
• D)is constant at 1.25

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Definitions:

Random Walk

The path of a variable whose changes are impossible to predict.

Marginal Utility

The additional satisfaction or usefulness gained from consuming one more unit of a good or service.

Risk-averse

Describes individuals or entities that prefer to avoid risk and would rather choose a certain outcome over a gamble with a potentially higher, but uncertain, return.

Diminishing Marginal Utility

An economic principle that asserts the added satisfaction a consumer gains from consuming one more unit of a good or service decreases with each additional unit consumed.