44. The \"quantity theory of money\" describes the relationship between: O price
ID: 2438962 • Letter: 4
Question
44. The "quantity theory of money" describes the relationship between: O prices, employment, money supply, and production. O the velocity of money, money supply, real output, and prices. GDP, money supply, consumption, and savings. O the money supply and real GDP 145. In the quantity theory of money, growth of is the cause of inflation. O the money supply O velocity O real GDP O the CP 46. A real shock is any shock that increases or decreases the growth rate of: O nominal GDP O real GDP. O potential GDP O prices. 47. Which of the following would cause the AD curve to shift to the left? Ohigher government budget deficits O increased growth in imports O lower growth rate of output O lower taxes 48. Which is NOT a function of the Federal Reserve? O serving as the lender of last resort O regulating the U.S. financial system O regulating the U.S. money supply O providing loans to small businessesExplanation / Answer
44. The quantity theory of money can be stated as MV = PY.
Where M = money supply, V = velocity of money, P = price level, Y = Income/output level in the economy
Thus, the correct answer is option b. the velocity of money, money supply, real output, and prices.
45. In the quantity theory of money, the output level and the velocity of money are assumed to be constant. MV = PY now becomes a direct relationship between the money supply and the price level since V and Y are constants. As the money supply increases, the price level increases.
Correct answer option a. the money supply.
46. A real shock has direct effects on endogeneously defined real variables in an economy. Thus, it affects the Real GDP.
Correct answer option b. real GDP.
47. The AD curve shifts to the left due to an immediate fall in consumer spending. An increase in government deficit makes the government tax the public or borrow from elsewhere (the burden of which eventually falls on the consumer). In either case, the aggregate demand falls.
Therefore, the correct answer is option a. higher government budget deficits.
48. The federal reserve serves all purposes listed except that it does not provide loans to small businesses. This function is performed by commercial banks and financial institutions.
Therefore, the correct answer is option d. providing loans to small businesses.
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