Quantity Theory of Money

The quantity theory of money is expressed by the identity equation: *

• MxV/PxY

• MxV=Y

• M=PxVxY

• MxV=PxY

Both sides of the quantity theory of money identity represent ____________. *

• Real GDP

• Inflation

• Nominal GDP

• The money supply

In the quantity theory of money, V represents

• the velocity of a dollar

• the value of a dollar

• the velocity of production

• the value of a good

In the quantity theory of money, P and Y represent the price and quantity of: *

• all raw materials and natural resources sold in an economy.

• all financial services sold in an economy.

• all durable capital (tractors, manufacturing equipment) purchased in the economy.

• all finished goods and services sold in an economy.

5. Nominal GDP in terms of _______ is represented by how much money there is and how many times it is spent, while Nominal GDP in terms of ________ is represented by all goods and services and their prices. *

a. buyers & sellers.

b. domestic production & international production.

c. profit & loss.

d. imports & exports.

• buyers and sellers

• domestic production and international production

• profit and loss

• imports and exports

1. A change in which variable in the quantity theory of money is most likely to cause large and sustained changes in prices? *

a. Y, the real GDP.

b. V, velocity of money.

c. M, the money supply.

d. None of the above.

• Y, the real GDP

• V, velocity of money

• M, the money supply

• None of the above

The growth rate in prices is also called: *

• the velocity of prices

• GDP spread

• escalation

• inflation

3. The phrase that “money is neutral in the long run,” means: *

a. if the money supply triples, prices will triple.

b. after enough time, money is worthless.

c. currency exchange rates are always fluctuating.

d. money is just a middle-man for the barter system.

• if the money supply triples, prices will triple

• after enough time, money is worthless

• currency exchange rates are always fluctuating

• money is just a middle-man for the barter system

4. The velocity of money is affected by which of the following? *

• How quickly the treasury prints new money

• If a consumer makes purchases with large bills or smaller bills

• If workers are paid weekly, bi-weekly, or monthly

• If a consumer uses a payment plan to purchase something or pays outright