According to the quantity theory of money, if an economy produces 100 units of output and has a money supply equal to $500, then if the money supply doubles while velocity remains unchanged, the new price level will
a. fall to $2.50
b. fall to $5.00
c. increase to $5.00
d. increase to $10.00
e. fall to $1.00
D
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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
What is the difference between scarcity and a shortage?
What will be an ideal response?
What establishes the value of fiat money?
a. Our collective trust and confidence that the central government, which decrees that money cannot be refused as payment for debt. b. Gold and silver owned by the large commercial banks. c. The central government authority's promise to redeem fiat money for gold or silver upon demand. d. None of the above.
Contagion is:
A. the rapid contraction of investment spending that occurs when interest rates are increased by the Federal Reserve. B. the rapid inflation that results from the printing of money. C. the failure of one bank spreading to other banks through depositors withdrawing of funds. D. the phenomenon that if one bank loan defaults it will cause other bank loans to default.