MONEY GROWTH AND INFLATION

Inflation can be measured by the

•  change in the consumer price index.

  
  

•  percentage change in the consumer price index.

• percentage change in the price of a specific commodity.

  
  

•  change in the price of a specific commodity.

  
  

 When prices are falling, economists say that there is

•  disinflation.

  
  

•  deflation.

  
  

•  a contraction.

  
  

•  an inverted inflation.

  
  

What is the quantity theory of money?

•  A theory that states the quantity of money in an economy determines the price level and inflation rate.

  
  

• A theory that states the quantity of money in an economy has no impact on the price level.

  
  

• A theory that states the quantity of money in an economy only affects interest rates.

  
  

• A theory that states the quantity of money in an economy directly affects real GDP.

  
  

Who is credited with developing the quantity theory of money?

• Adam Smith

  
  

• John Maynard Keynes

• David Ricardo

  
  

•  Irving Fisher

  
  

According to the quantity theory of money, what is the relationship between the money supply and the price level?

•  Directly proportional

  
  

•  Inversely proportional

  
  

• No relationship

•  Exponential relationship

  
  

 How is the velocity of money related to the quantity theory of money?

• It is irrelevant in the quantity theory of money.

  
  

•  It is used to determine the inflation rate.

• It is a key factor in determining the impact of changes in the money supply on the price level.

  
  

• It is used to calculate real GDP.

 What does the equation of exchange (MV = PQ) represent?

•  The quantity theory of money

  
  

• The relationship between money supply, velocity of money, price level, and real GDP

  
  

• The basis for monetary policy decisions

  
  

•  The relationship between money supply and inflation

What does M represent in the equation of exchange?

• Money supply

  
  

• Velocity of money

  
  

• Price level

  
  

• Real GDP

  
  

 What does V represent in the equation of exchange?

•  Money supply

  
  

• Velocity of money

  
  

• Price level

  
  

•  Real GDP

  
  

What does P represent in the equation of exchange?

• Money supply

  
  

• Velocity of money

  
  

• Price level

  
  

• Real GDP