The equation of exchange of money is given by M x V = P x Q, where M is the money supply, V is the velocity of money, P is the economy's price level, and Q is Real GDP. Currently, the money supply is $500 billion, the velocity of money is 4, and the amount of Real GDP is $400 billion.
The simple quantity theory of money assumes that velocity and Real GDP are constant. According to the simple quantity theory of money, which of the following statements are true?
I. Changes in money supply will change aggregate demand.
II. Total expenditures (M x V) should always be less than total sales revenues (P x Q).
III. The aggregate supply curve is vertical at $400 billion.
IV. The aggregate demand curve is horizontal at $500 billion.
A. I, II, and III
B. I, III, and IV
C. II and III
D. I and III
2006-10-05
11:09:06
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1 answers
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asked by
scott S
1
in
Houston