Proponents of Real Business Cycle Models Argue That the Correlation

question 48

Multiple Choice

Proponents of real business cycle models argue that the correlation between changes in the money supply and changes in real GDP may reflect the fact that

• A) the velocity of money is unpredictable.
• B) the quantity of money demanded is relatively insensitive to changes in the interest rate.
• C) as real output increases, the demand for money increases, leading to an increase in the money supply.
• D) the free enterprise economy has strong self-regulating mechanisms promoting full employment.
• E) the equation of exchange varies considerably over the course of the business cycle.

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Definitions:

Common Stock

A type of equity security that represents ownership in a corporation, giving holders voting rights and the potential for dividends.

Market Yield

The current rate of return anticipated on a bond if held until maturity, expressed as an annual percentage.

Component Cost

The cost related to each source of capital, such as debt and equity, that a company uses for funding.

Preferred Stock

A class of ownership in a corporation that has a higher claim on assets and earnings than common stock, usually with fixed dividends.