Suppose the Velocity of Money Is 6, the Amount of Money

question 126

Multiple Choice

Suppose the velocity of money is 6, the amount of money in circulation is $600 billion, the index of prices is 180, and real GDP is $20 billion. According to the strict quantity theory of money, if the money supply decreased to $300 billion,

• A) the velocity of money would rise to 12.
• B) the index of prices would fall to 90.
• C) real GDP would decrease to $10 billion.
• D) the velocity of money would decline to 3.

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Definitions:

Inventory Costing

A method used in accounting to value inventory, incorporating elements like purchase cost, conversion costs, and overheads to determine the end value of inventory.

T-account

A graphic representation of a general ledger account, used in accounting to visualize debits and credits.

Cross-referencing

The act of linking information between documents or sections within the same document to provide clarity and support for statements or claims.

Posting

The process of recording financial transactions in the appropriate accounts in the ledger of a business.