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:

Fixed Cost

Costs that do not change in total regardless of the level of output or activity in the short term.

Average Fixed Cost

The fixed costs of production (costs that do not change with the level of output) divided by the quantity of output produced.

Variable Cost

Costs that change in proportion to the level of activity or volume of production in a business.

Total Cost

Total cost refers to the aggregate sum of all costs, both fixed and variable, incurred by a business in producing goods or services.