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Chapter 26: Problem 8

The \(V\) in the equation of exchange represents the a. variation in the GDP. b. variation in the CPI. c. variation in real GDP. d. average number of times per year a dollar is spent on final goods and services.

Short Answer

Expert verified
The correct answer is \(d. \) average number of times per year a dollar is spent on final goods and services, which represents the velocity of money ('V') in the equation of exchange.

Step by step solution

01

Identify the concept of Velocity of Money

The velocity of money can be defined as the rate at which money is exchanged from one transaction to another or how much a unit of currency is used in a given period of time. It helps in measuring the rate at which money goes from one transaction to another in an economy.
02

Match the Definition to the Options Provided

By taking the definition of the velocity of money into account, it's clear that the variable 'V' does not refer to variations in GDP, CPI, or Real GDP. The 'V' therefore, must represent the average number of times per year a dollar is spent on final goods and services, which is the definition of the velocity of money.
03

Choose the Correct Answer

Based on the definition of the velocity of money and the options presented in the question, we can conclude that the correct choice is 'd. average number of times per year a dollar is spent on final goods and services.' This aligns most closely with the concept of the velocity of money as used in the equation of exchange.

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Most popular questions from this chapter

The monetarist transmission mechanism through which monetary policy affects the price level, real GDP, and employment depends on the a. indirect impact of changes on the interest rate. b. indirect impact of changes on profit expectations. c. direct impact of changes in fiscal policy on aggregate demand. d. direct impact of changes in the money supply on aggregate demand.

Keynesians reject the influence of monetary policy on the economy. One argument supporting this Keynesian view is that the a. money demand curve is horizontal at any interest rate. b. aggregate demand curve is nearly flat. c. investment demand curve is nearly vertical. d. money demand curve is vertical.

A decrease in the interest rate, other things being equal, causes a (an) a. upward movement along the demand curve for money. b. downward movement along the demand curve for money. c. rightward shift of the demand curve for money. d. leftward shift of the demand curve for money.

Using the aggregate supply and demand model, assume the economy is in equilibrium on the intermediate portion of the aggregate supply curve. A decrease in the money supply will decrease the price level and a. lower both the interest rate and real GDP. b. raise both the interest rate and real GDP. c. lower the interest rate and raise real GDP. d. raise the interest rate and lower real GDP.

Starting from an equilibrium at \(E_{1}\) in Exhibit \(12,\) a rightward shift of the money supply curve from \(M S_{1}\) to \(M S_{2}\) would cause an excess a. demand for money, leading people to sell bonds. b. supply of money, leading people to buy bonds. c. supply of money, leading people to sell bonds. d. demand for money, leading people to buy bonds.
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