If Real GDP Grows by 3 Percent, the Velocity of Circulation

question 212

Multiple Choice

If real GDP grows by 3 percent, the velocity of circulation grows by -4 percent, and the quantity of money grows by 3 percent, then in the long run the inflation rate is

• A) 4 percent.
• B) -4 percent.
• C) -1 percent.
• D) 10 percent.
• E) 1 percent.

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Definitions:

Gain On Disposal

The profit realized from the sale of assets other than inventory, exceeding the book value of the assets sold.

Accumulated Depreciation

The total amount of depreciation expense that has been recorded for an asset since its purchase.

Accelerated Depreciation

A method of depreciation that allows a larger portion of an asset's cost to be deducted in the early years of useful life.

Freight Costs

The expenses incurred to transport goods from one location to another.