Question

A. If V is constant, the rate of growth of M that is consistent with a...

A. If V is constant, the rate of growth of M that is consistent with a stable price level is

zero.
the rate of growth of PQ.
the rate of growth of Q.
the expected rate of inflation.
none of the above

B. A monetarist would argue that

small changes in M could be offset by changes in V and not cause changes in P.
changes in M in the short run can cause Real GDP to fall.
prices and wages are flexible.
b and c
a, b and c

C.

The increase in the interest rate due to a higher expected inflation rate is called the __________ effect.

expectations
Fisher
liquidity
income
a or b
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Homework Answers

Answer #1

The correct choice for first question is the rate of growth of Q. This is because price level is a stable so there is no inflation. velocity is constant so any change in the money growth rate will be equivalent to growth rate of output.

The answer for the second question is all the options, a b and c. Monetarist believe that changes in money supply can actually influence the price level wages and therefore output level in the short run.

The correct choice for third question is expectations effect. It basically happens because when there is an increase in the nominal interest rate, there is a change in the aggregate supply which changes the expectations towards future inflation rate.

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