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The classical economists' conclusion that nominal income is determined by movements in
the money supply rested on their belief that ____ could be treated as ____ in the short
run.
A) velocity; constant
B) velocity; variable
C) money; constant
D) money; variable
Answer: A
Diff: 2 Type: MC Page Ref: 527
Skill: Recall
Objective List: 21.1 Describe how the demand for money is determined
The view that velocity is constant in the short run transforms the equation of exchange into
the quantity theory of money. According to the quantity theory of money, when the money
supply doubles ____.
A) velocity falls by 50 percent
B) velocity doubles
C) nominal incomes falls by 50 percent
D) nominal income doubles
Answer: D
Diff: 2 Type: MC Page Ref: 527
Skill: Recall
Objective List: 21.1 Describe how the demand for money is determined
Cutting the money supply by one-third is predicted by the quantity theory of money to cause
____.
A) a sharp decline in real output of one-third in the short run, and a fall in the price level by one-
third in the long run
B) a decline in real output by one-third
C) a decline in output by one-sixth, and a decline in the price level of one-sixth
D) a decline in the price level by one-third
Answer: D
Diff: 2 Type: MC Page Ref: 527
Skill: Applied
Objective List: 21.1 Describe how the demand for money is determined
The classical economists believed that if the quantity of money doubled, ____.
A) output would double
B) prices would fall
C) prices would double
D) prices would remain constant
Answer: C
Diff: 2 Type: MC Page Ref: 527 - 528
Skill: Applied
Objective List: 21.1 Describe how the demand for money is determined