G12: Quantity Theory of Money and Inflation

The quantity theory of money is expressed by the identity equation: 

• MV / PY

• MV = Y

• M = PYV

• MV = PY

Both sides of the quantity theory of money identity represent ____________. 

• Nominal GDP

• Inflation

• The Money Supply

• Real GDP

In the quantity theory of money, V represents:

• The velocity of production

• The value of a dollar

• The value of a good

• The velocity of a dollar

In the quantity theory of money, P and Y represent the price and quantity of

• all finished goods and services sold in an economy

• all financial services sold in an economy

• all durable capital (tractors, manufacturing equipment) purchased in the economy

• all raw materials and natural resources sold in an economy

Nominal GDP in terms of _______ is represented by how much money there is and how many times it is spent, while Nominal GDP in terms of ________ is represented by all goods and services and their prices

• domestic production & international production

• buyers & seller

• sellers & buyer

• imports & exports

A change in which variable in the quantity theory of money is most likely to cause large and sustained changes in prices?

• M, the money supply

• Y, the real GDP

• V, velocity of money

• None of the above

The growth rate in prices is also called:

• inflation

• escalation

• GDP spread

• the velocity of prices

The phrase that “money is neutral in the long run,” means:

• after enough time, money is worthless

• if the money supply triples, prices will triple

• currency exchange rates are always fluctuating

• money is just a middle-man for the barter system

The velocity of money is affected by which of the following?

• How quickly the treasury prints new money

• If workers are paid weekly, bi-weekly, or monthly

• If a consumer makes purchases with large bills or smaller bills

• If a consumer uses a payment plan to purchase something or pays outright

Which of the following situations is an example of inflation occurring in a two-good economy?

• The price of apples is about 2% higher than it was five years ago, while the price of pears fell by about 2% over the same time period.

• The price of apples and the price of pears both increased by about 2% in the last five years.

• The price of apples and the price of pears have remained the same over the past 5 years, but wages for factory workers have increased since then.

• The price of apples and the price of pears both decreased about 5% in the past 5 years.