If a Percentage Decrease in Money Supply Is Followed by a Proportional

question 15

Multiple Choice

If a percentage decrease in money supply is followed by a proportional percentage decrease in prices and output, this means that:

• A)the velocity of money is constant.
• B)the economy is in a recession.
• C)the velocity of money has fallen.
• D)real GDP is constant.
• E)the economy is not at maximum capacity

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Definitions:

Output Effect

The impact on the total production of goods and services in an economy resulting from changes in demand, supply, technology, or factors of production.

Factors of Production

The basic inputs used to produce goods and services, including land, labor, capital, and entrepreneurship.

Complementary Resource

A good or service that is used together with another good or service to provide a benefit or function.

Substitution Effect

The economic understanding that as prices rise or incomes decrease, consumers replace more expensive items with less costly alternatives.