18) The proposition that changes in the money supply do not affect real variable

Question

18) The proposition that changes in the money supply do not affect real variables is (2pts) called the classical dichotomy monetary neutrality liquidity preference the quantity theory of money 19) Based on the quantity equation, if P = 30, Y = 50, and M = 500, then (2pts) 40 20 80 20) According to the dynamic version of the equation of exchange (as presented in the (2pts) PowerPoint slides for Chapter 1 2), what will the rate of inflation be if real output grows 3% a year while the money supply grows 9% a year, assuming velocity is constant? 6% 5% 27% 1096

Explanation / Answer

18) A. Classical dichotomy says the nominal variable doesnot affect the real varaibale i.e. Change in prices or money supply doesnot have any effect om real output or employment

19)ans is E

MV=PY

500v=50*30=1500 thus V=1500/500=3

20)ans is A

%change in M and V=%change in Y and P

9=3+%change in price=6%

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