If velocity were predictable but not constant, would a monetary policy that fixed the growth rate of money work?
What will be an ideal response?
Answer: We know that money growth + velocity growth = inflation + real growth. If velocity is not constant, then fixing the growth rate of money will result in either rising or falling inflation. However, if velocity is predictable, policymakers could increase money growth at the same rate that velocity is decreasing (or decrease money growth at the same rate that velocity is increasing) in order to stabilize inflation.
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A tax can always be found and implemented that will correct a cause of an external effect
Indicate whether the statement is true or false
Which set of fiscal policies would tend to offset each other?
A. A decrease in government spending and no change in taxes B. An increase in government spending and a decrease in taxes C. A decrease in government spending and taxes D. A decrease in government spending and an increase in taxes
If the demand for widgets is inelastic, total revenue will ________ if the price of widgets increases.
a. increase b. decrease c. remain the same d. one cannot tell what will happen to revenues without specific elasticity numbers e. none of the above
According to the quantity theory of money, increases in the money supply lead to
A. decreases in the price level. B. increases in taxes. C. increases in the price level. D. decreases in nominal Gross Domestic Product (GDP).