Asked by Kasongo Alain on May 25, 2024
Verified
According to crude versions of the quantity theory of money
A) the money supply determines the real interest rate in equilibrium.
B) the general price level is determined strictly by the real costs of production.
C) the general price level is exactly proportional to the money supply in equilibrium.
D) increases in the money supply will increase output and employment in the long run.
General Price Level
indicates the average of the current prices of all goods and services in the economy at a specific time.
Money Supply
The aggregate of all funds accessible in an economy, counting cash, coins, and checking and savings account balances, at a certain time.
- Comprehend the connection between the quantity of money, its velocity of circulation, price levels, and economic output.
- Comprehend the influence of variations in the monetary supply on inflation rates and the steadiness of the economy.
Verified Answer
PN
Pham Nguyen Dinh Hai (K14 DN)May 28, 2024
Final Answer :
C
Explanation :
According to crude versions of the quantity theory of money, the general price level is exactly proportional to the money supply in equilibrium. This means that increases in the money supply will lead to proportionate increases in the general price level. However, more sophisticated versions of the quantity theory of money recognize that other factors can also affect prices, such as changes in productivity or changes in the demand for money.
Learning Objectives
- Comprehend the connection between the quantity of money, its velocity of circulation, price levels, and economic output.
- Comprehend the influence of variations in the monetary supply on inflation rates and the steadiness of the economy.