ECONOMICS
BUSINESS CYCLES
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
An increase in price level will lead to an increase in interest rates
|
|
|
If the velocity of money is negative then unemployment will increase
|
|
|
An increase in the velocity of money will increase real output
|
|
|
An increase in money supply or the velocity of money will increase nominal output
|
|
|
A decrease in the money supply will decrease the velocity of money
|
Detailed explanation-1: -According to the quantity theory of money, if the amount of money in an economy doubles, all else equal, price levels will also double. This means that the consumer will pay twice as much for the same amount of goods and services.
Detailed explanation-2: -The quantity theory of money states that the value of money is based on the amount of money in the economy. Thus, according to the quantity theory of money, when the Fed increases the money supply, the value of money falls and the price level increases.
Detailed explanation-3: -Rising money supply growth would raise inflation which would raise inflation expectations and push interest rates up. 5a. If inflation increases, the nominal interest rate will increase to an even higher level.
Detailed explanation-4: -The quantity theory of money An increase in the money supply ( M) without an increase in output ( Y) causes the price level to change by the same change in the money supply. In other words, output doesn’t change, but when the money supply doubles, the price level also doubles.