Answer this question on the basis of the diagram and the equation of exchange. Assume that the velocity of money is constant at 4. Suppose that the increase of aggregate supply from AS 1 to AS 2 indicates the economy's average increase in real output per year. According to monetarists, the proper monetary rule for price stability would be to increase the money supply by:
A. zero percent per year.
B. 4 percent per year.
C. 10 percent per year.
D. 30 percent per year.
D. 30 percent per year.
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When there is an expansionary gap, inflation will ________, in response to which the Federal Reserve will ________ real interest rates, and output will ________.
A. decline; lower; expand B. increase; raise; decline C. decline; lower; decline D. decline; raise; decline
The money supply that consists of currency, transaction deposits, and traveler's checks is
A) the fiduciary monetary system. B) M1. C) M2. D) the liquidity approach.
In national income accounting, the value of worn out or obsolete capital is represented by
A) depreciation. B) transfer payments. C) disposable income. D) dividends.
The planning horizon is the
A) long run. B) short run. C) point where production begins. D) point where diminishing marginal product starts.