6) According to the equation of exchange, which of the following are assumed to

Question

6) According to the equation of exchange, which of the following are assumed to be constant ? A) income and prices B) income and the velocity of circulation C) the money supply and prices D) the money supply and income E) none of the above are assume to be constant 7) According to the quantity theory of money, which of the following are assumed to be constant ? A) income and the velocity B) prices and income C) income and the money supply D) prices and the velocity of circulation E) none of the above are assumed to be constant 8) According to the Keynesian model, which of the following would result in a decrease in the rate of interest? A) a decrease in saving B) an increase in borrowing C) an increase in the money supply D) a decrease in the money supply E) none of the above

Explanation / Answer

6. B) income and the velocity of circulation
In the equation of exchange velocity and income are assumed to be constant in equation of exchange

7. B) income and the velocity
Income (real GDP) and velocity are again assumed to be constant in Quantity theory of money.

8 C) an increase in the money supply
An increase in the money supply means that there will be surplus liquidity in the market and hence the interest rate will decline.

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