Figure 34-2. On the left-hand graph, MS represents the supply of money and MD represents the demand for money; on the right-hand graph, AD represents aggregate demand. The usual quantities are measured along the axes of both graphs.

-Refer to Figure 34-2. Assume the money market is always in equilibrium, and suppose r1 = 0.08; r2 = 0.12; Y1 = 13,000; Y2 = 10,000; P1 = 1.0; and P2 = 1.2. Which of the following statements is correct?
A) When r = r2, nominal output is higher than it is when r = r1.
B) When r = r2, real output is higher than it is when r = r1.
C) When r = r2, the expected rate of inflation is higher than it is when r = r1.
D) If the velocity of money is 4 when r = r2, then the quantity of money is $3,000.

Question

Figure 34-2. On the left-hand graph, MS represents the supply of money and MD represents the demand for money; on the right-hand graph, AD represents aggregate demand. The usual quantities are measured along the axes of both graphs.
 
-Refer to Figure 34-2. Assume the money market is always in equilibrium, and suppose r1 = 0.08; r2 = 0.12; Y1 = 13,000; Y2 = 10,000; P1 = 1.0; and P2 = 1.2. Which of the following statements is correct?
A) When r = r2, nominal output is higher than it is when r = r1. 
B) When r = r2, real output is higher than it is when r = r1. 
C) When r = r2, the expected rate of inflation is higher than it is when r = r1. 
D) If the velocity of money is 4 when r = r2, then the quantity of money is $3,000.

Quizplus · Accepted Answer

The quantity of money can be calculated using the equation MV = PY. Given V = 4, P2 = 1.2, and Y2 = 10,000, the quantity of money M is $3,000 when r = r2.