Question

1. The money supply is currently growing at 8% per year. According to the monetarists the...

1. The money supply is currently growing at 8% per year. According to the monetarists the price level will ____________ (increase/decrease) at ____% per year? What should the money supply be doing?
?20 pts
Tax Rate
Tax Base
Tax Revenue
20%
$8 Trillion
?
30%
?
$2.1 Trillion
?
$5.5 Trillion
$2.2 Trillion
?
$4 Trillion
$2.0 Trillion
2. Fill in the missing information and identify each of the three intervals (marked at the side of the table) as having prohibitive or non-prohibitive taxes. 35 points
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Answer #1

According to monetarist, the quantity theory of money states that MV = PT, where M is the money supply, V is the velocity, P is the price level and T is the total transaction cost. On other things remaining same, the quantity theory of money shows a direct relationship between money supply and the price level.

The money supply is currently growing at 8% per year. According to the monetarists the price level will _______increasing_____ (increase/decrease) at _8___% per year?  

Tax Rate Tax Base Tax Revenue
20% 8 1.6 Non prohibitive
30% 0.07 2.1 Non prohibitive
40% 5.5 2.2 Non prohibitive
50% 4 2.0 Non prohibitive
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