The equation of exchange states that:
A. money supply multiplied by real output equals velocity.
B. velocity multiplied by money supply equals the selling price times the quantity of actual output.
C. money supply divided by velocity equals nominal GDP.
D. money supply divided by velocity equals real GDP.
Answer: B
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Use the following figure for the federal funds market to answer the next question.
If the Fed supplies $200 billion in reserves, the equilibrium prime rate is ________.
A. 5.5% B. 5.0% C. 6.0% D. Undeterminable with the information given.
If the expected path of 1-year interest rates over the next four years is 5 percent, 4 percent, 2 percent, and 1 percent, then the expectations theory predicts that today's interest rate on the four-year bond is
A) 1 percent. B) 2 percent. C) 3 percent. D) 4 percent.
Assuming that GDP currently equals potential GDP, a cost-push inflation could result from which of the following?
A. a decrease in tax rates B. an increase in the labor force C. a large crop failure that boosts the prices of raw food materials D. an increase in the nation's capital stock
Double-entry bookkeeping implies that:
A. aggregate income net of profits is less than the value of final output because profit can add or take away from final output. B. profits fill the gap between the sum of employee compensation, rents and interest on the one hand and the value of final output on the other hand. C. profits cannot be negative because profit equals the value of final output less costs. D. aggregate income net of profits is greater than the value of final output because profit can add or take away from final output.