Suppose the Money Supply Tripled, but at the Same Time

question 333

Multiple Choice

Suppose the money supply tripled, but at the same time velocity fell by half and real GDP was unchanged. According to the quantity equation the price level

• A)is 1.5 times its old value.
• B)is 3 times its old value.
• C)is 6 times its old value.
• D)is the same as its old value.

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Definitions:

Equity Value

The value of a company’s shares; it represents the residual value to shareholders after debts and liabilities have been settled.

Sustainable Growth Rate

The maximum rate at which a company can grow its sales, earnings, and dividends without having to increase financial leverage or equity financing.

Return On Equity

A financial ratio that measures the profitability of a business in relation to the amount of equity, indicating how effectively management is using shareholders’ funds.

Payout Ratio

A financial metric showing the proportion of earnings a company pays to its shareholders in the form of dividends.