According to the Equation of Exchange, How Can National Income

question 30

Multiple Choice

According to the equation of exchange, how can national income grow even though the amount of money does not?

• A)price level increases
• B)real GDP decrease
• C)velocity increases
• D)velocity decreases

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Definitions:

Demand for Products

Consumers' eagerness and capability to acquire goods and services for certain prices.

Substitution Effect

The change in consumption patterns due to a change in relative prices, leading consumers to substitute one product for another.

Output Effect

The impact on total revenue when a firm alters its production level, influencing the quantity of goods sold and potentially the market price.

Fixed Proportions

A production process in which inputs are used in a constant ratio to each other, with no substitution possible between the inputs.