Using the Equation of Exchange, If Inflation Is 1

question 82

Multiple Choice

Using the equation of exchange, if inflation is 1.5%, real output grows by 3.0%, and the growth rate of money is 5.0%, the change in the velocity of money is:

• A) Zero; velocity is constant.
• B) -0.5%.
• C) +4.5%.
• D) +0.5%.

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Definitions:

Price Rises

An increase in the cost of goods or services, which can affect consumer buying power and inflation rates.

Elasticity of Supply

A measure of how much the quantity supplied of a good changes in response to a change in its price.

Demand

The quantity of a good or service that consumers are willing to buy at a given price over a specific period of time.

Equilibrium Price

The market price at which the quantity of goods supplied equals the quantity of goods demanded.