The Quantity Theory of Money Begins with the Equation of Exchange

question 2

Multiple Choice

The quantity theory of money begins with the equation of exchange, MV = PY, and then adds the assumptions that

• A)velocity varies inversely with the interest rate, and the price level is independent of the quantity of money.
• B)velocity and the price level are independent of the quantity of money.
• C)potential GDP and the quantity of money are independent of the price level.
• D)potential GDP and the price level are independent of the quantity of money.
• E)velocity and potential GDP are independent of the quantity of money.

Understand the methodology and significance of the value added approach in GDP calculation to avoid double counting.

Identify and explain the factors leading to discrepancies between nominal and real GDP, and their implications for measuring economic growth.

Distinguish between nominal GDP, real GDP, and the GDP price index and their roles in economic analysis.

Understand the concept of leakage and injection in the economic cycle and its impact on GDP.