Suppose the Velocity of Money Is Not Fixed,but Stable at About

question 58

Essay

Suppose the velocity of money is not fixed,but stable at about two percent growth per year.How could the quantity theory of money be modified to include a stable growth rate of the velocity of money? In this modified quantity theory of money with velocity growing at two percent per year,what would the growth rate of the other variables in the theory need to be to cause inflation?

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Definitions:

DFL

Degree of Financial Leverage, a ratio that measures the sensitivity of a company's earnings per share to fluctuations in its operating income due to changes in its capital structure.

EBIT

Earnings Before Interest and Taxes, a financial measure that calculates a company's profitability based on its operations without the effects of interest and taxes.

Contribution Margin

The selling price per unit minus the variable cost per unit, used to cover fixed costs and to generate profit.

Breakeven

The point at which total costs and total revenue are equal, resulting in no net loss or gain for a business.