CFA Practice Question

There are 539 practice questions for this study session.

CFA Practice Question

According to advocates of the quantity theory of money, a government that attempts to maintain a high level of output is likely to ______
A. be successful and generate a low rate of inflation.
B. generate considerable inflation, but not enough to really hurt the economy.
C. undermine the economy's future growth by producing a high level of inflation.
Explanation: Inflation undermines growth by creating uncertainty, by making it more difficult for businesses to enter into contracts, and by increasing the costs of avoiding inflation.

User Contributed Comments 2

User Comment
gill15 There was a another question that said. A country has increased the Money supply by 10% but there has been no inflation. How is this possible and the answer stated that when using M = P divided by Y (Assume v-konstant).....we can correspondingly increase Y(Aggregate output) so that inflation has no affect....

In this question....I`m confused...If we increase Y(aggregate output)....why would there be in inflation. The price level would fall....

Might just be having an early morning brain freeze but not getting this right now.
Shaan23 Gill. You're thinking too much.

With a high level of output the price level would be high(Inflation). Think of it as AD moving up and to the right. For eg. Goverment spending Increases.
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