According to the quantity theory of money currently used by monetarists, assuming velocity is constant (at a value of 5), a 10 percent increase in the money supply will raise
A. nominal GDP by 50 percent.
B. real GDP by 10 percent.
C. nominal GDP by 10 percent.
D. real GDP by 50 percent.
Answer: C
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As the relative price of a good falls, the substitution effect implies that people buy
A) less of that good and more of its substitutes. B) more of that good and less of its substitutes. C) less of that good and less of its substitutes. D) more of that good and more of its substitutes.
The change in consumption divided by a change in disposable income is called the:
a. consumption function. b. marginal propensity to consume. c. marginal propensity to spend. d. spending function. e. changing propensity to consume.
If Y = A × N × (75 + K/N), where K = 1000, N = 20, and A = 10, what happens if K doubles and N doubles?
A. Y quadruples. B. Y doubles. C. Y is unchanged. D. Y increases by 50%.
Comment on the following: "The second welfare theorem says that we can get any efficient allocation to be an equilibrium allocation. If endowments are inequitably distributed in an economy, we can therefore redistribute among people and still get an efficient outcome. As a result, there is no policy trade-off between equity and efficiency."
What will be an ideal response?