Quantecon Is a Country in Which the Quantity Theory of Money

question 34

Multiple Choice

Quantecon is a country in which the quantity theory of money operates. The country has a constant population, capital stock, and technology. In year 1, real GDP was $400 million, the price level was 200, and the velocity of circulation was 20. In year 2 the quantity of money was 20 percent higher than in year 1.
The quantity of money in year 1 was ________.
The quantity of money in year 2 was ________.
The price level in year 2 is ________.

• A)$20 million; 24 million; 240
• B)$20 million; $24 million; 220
• C)$40 million; $48 million; 240
• D)$40 million; $48 million; 220
• E)$80 million; $88 million; 200

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Definitions:

Sum-Of-The-Years'-Digits Method

A depreciation technique that accelerates the expense recognition, basing the calculation on a fraction of the sum of the years’ digits of the asset’s life.

Inventory System

A method used by organizations to maintain and manage the goods or materials that they stock, either for sale or for production purposes.

Depreciation Expense

A non-cash charge that reduces the value of an asset over time due to use, wear and tear, or obsolescence.

Residual Value

The estimated value of an asset at the end of its useful life, determining the depreciation amount to be allocated during the asset's lifespan.