The Quantity Theory of Money Predicts That Increases in the Money

question 49

Multiple Choice

The quantity theory of money predicts that increases in the money supply lead to non-inflationary increases in real GDP when

• A) real GDP is above potential GDP.
• B) real GDP is below potential GDP.
• C) the international transmission mechanism breaks down.
• D) the domestic transmission mechanism breaks down.
• E) hell freezes over.

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Definitions:

Marginal Cost

The escalation in aggregate cost stemming from the production of one more unit of a good or service.

Business Tax

Taxes imposed on the income or profit of businesses, varies by country and the type of business.

Demand Curve

A graphical representation of the quantity of a good or service demanded by consumers at various prices, typically downward sloping indicating an inverse relationship between price and quantity demanded.

Average Revenue Curve

A graphical representation showing how the average revenue per unit sold changes with changes in the quantity of the product sold.