Money Value and Average Price Level Quiz

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12 Questions

According to the cash balance approach to the quantity theory of money, what does the price level and value of money depend on?

Demand for money

Which economists were associated with the development of the cash balance approach?

Marshall, Pigou, Robertson & Keynes

What is the transaction motive in the demand for money according to the cash balance approach?

Day to day transactions

What is the precautionary motive in the demand for money according to the cash balance approach?

Meeting unexpected requirements

Why is the assumption of full employment considered invalid in the context of quantity theory of money?

It ignores cyclical fluctuations

How does Fisher's equation differ from the cash balance approach in explaining the price level?

It considers rate of interest

What happens to the value of money when the quantity of money becomes double?

It becomes half

Based on the assumptions, which one of the following is NOT true about Fisher's transaction equation?

V & T are completely dependent on M

What happens to the value of money when the quantity of money becomes fourfold?

It becomes one fourth

Which of the following is a criticism of Fisher's transaction equation based on the text?

V & T are assumed to be dependent on M

When the quantity of money (M) becomes double, what happens to the average price level (P) according to the text?

It becomes double

What is a realistic assumption that Fisher's transaction equation is criticized for not considering?

'Ceteris Paribus'

Test your understanding of money value, quantity, average price level, and their relationships. Solve problems involving changes in money quantity, average price level, and the resulting value of money.

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