Suppose That We Produce a Graph with the Annual Inflation

question 72

Multiple Choice

Suppose that we produce a graph with the annual inflation rate on the y-axis and the growth rate of the money supply minus the growth rate of real GDP on the x-axis.We plot the averages of each of these quantities over the past 50 years on the graph.If the countries' points all lie approximately on the 45° line,then this lends support to the ________.

• A) quantity theory of money being correct
• B) quantity theory of money being incorrect
• C) social cost of inflation outweighing the social benefit of inflation
• D) social benefit of inflation outweighing the social cost of inflation

---

Definitions:

Affect Heuristic

The reliance on instinct instead of analysis in making decisions.

Endowment Effect

A cognitive bias in which individuals value an owned object higher than its market value, simply because they own it.

Affect Heuristic

A mental shortcut that influences decision-making based on emotions and feelings.

Street Smarts

Practical knowledge and experience in dealing with everyday situations or challenges, often contrasted with book learning.