The Equation of Exchange Is an ________ While the Quantity

question 32

Multiple Choice

The equation of exchange is an ________ while the quantity theory of money is a theory that ________.

• A) accounting identity; assumes the money supply is constant
• B) accounting identity; assumes velocity is held constant
• C) accounting theory; assumes the price level is constant
• D) accounting theory; economists use to explain changes in real GDP

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Definitions:

Law of Diminishing Returns

An economic principle stating that adding more of one factor of production, while holding others constant, will at some point yield lower per-unit returns.

Fixed Factor

An input in the production process that cannot be changed in the short term, such as premises or machinery.

Output Decreasing

A situation where the quantity of goods or services produced by an economy or firm is reducing over time.

Marginal Revenue

The additional income earned by selling one more unit of a good or service, crucial for determining optimal output levels.