Question

42. On a given aggregate demand curve, if the rate of spending growth is 10% and the growth rate of the money supply is 2%, then the velocity of money must be growing at: A) 5% B) 8%. 12%. D) 20% 43. According to the quantity theory of money, if both the growth rate of the money supply and the velocity of money are fixed, then a higher inflation rate means: A) a higher real growth rate. B) no change in the real growth rate. C) a lower real growth rate. D) a higher or lower real growth rate, depending on the specific growth rate of the money supply. 44. What was one of the federal government policy failures in 1930 that contributed to the Great Depression? A) the Smoot-Hawley Tariff B) the declaration of a bank "holiday" C) the elimination of bank deposit insurance D) the creation of the Federal Reserve 45. (Figure: Real Shocks) From Point X in the accompanying graph, a negative real shock could cause the economy to move to Point: Inflation, LRAS 1046 Real GDP growth rate

Answer 1

42)

% Change in quantity of money + % change in the Velocity = % Change in spending.

2 % + % Change in Velocity = 10%

% Change in Velocity = 10 % - 2 %

= 8 %

Answer: (B)

43)

Answer: (C)

Here real growth rate would be less than the fixed growth rate of money and velocity of money. hence inflation would rise.

44)

Answer: (A)

Smoot Hawley tariff act restricted the import and raised prices of import or food and other countries also retaliated, so Eventually, there are fall in economic activities further,

45)

Answer: (C)

Supply curve shifts left thereby reducing quantity and raising the price level.