39. According to the quantity theory of money, a decrease in prices would be due

Question

39. According to the quantity theory of money, a decrease in prices would be due to a. a decrease in the money supply b. an increase in the money supply c. a decrease in the production of output. d. an increase in the production of output. 40. The velocity of money is: a. the number of transactions a typical dollar is used in during a given period. b. the number of goods a typical dollar can buy in a given period. c. how quickly money is created through the financial system. d. None of these statements is true 41. If an economy produces 1,000 units of output with a price level of $1 and the money supply (M) is $500, velocity is a. b. 500 c. 50 42. According to the quantity theory of money, if the economy were facing inflation, the Fed could combat it by: a. decreasing the supply of money b. increasing the supply of money c. cutting taxes d. increasing taxes.

Explanation / Answer

39. Ans: a decrease in the money supply.

Explanation:

P = MV / Y

Price level will decreases due to decrease in M (money supply).

40. Ans: a number of transactions a typical dollar is used in during a given period.

41. Ans: 2

Explanation:

MV = PY

500V = 1 * 1000

V = 1000 / 500 = 2

42. Ans: decreasing supply of money.

Explanation:

Fed using it's monetary policy tools can decrease supply of money to combat inflation.

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