Question

The velocity of money is

A. the time it takes to produce money.
B. the number of times per year a dollar is spent on final goods and services.
C. an annual percentage change in the Consumer Price Index
D. the time lag from when the money supply is increased until the effect takes place. When there is cost-push inflation, prices rise, and unemployment


When there is cost-push inflation, prices ris,e and unemployment :
A. falls.
B. is constant.
C. rises.
D. rises or falls.

According to the law of short-run aggregate supply,
A. higher prices create incentives for decreased production since consumers prefer lower prices.
B. lower prices stimulate more consumer purchases.
C. lower prices create incentives for increased production through higher profits.
D. higher prices create incentives for increased production through higher profits.

Answer 1

The velocity of money refers to how frequently money is spent on final goods and services within a certain period, usually a year. During cost-push inflation, unemployment tends to rise. According to the law of short-run aggregate supply, higher prices incentivize increased production due to the prospect of higher profits.

Step-by-step explanation:

The velocity of money is an economic term used to describe the speed at which money is exchanged from one transaction to another and how much money is used for purchasing goods and services within a certain time period. The correct answer to the question is B: the number of times per year a dollar is spent on final goods and services. Specific measurements of velocity, such as those of the M1 money supply, reveal how the velocity of money relates to economic activity and monetary policy.

During cost-push inflation, costs of production rise leading to an increase in prices. This situation can often lead to higher unemployment as companies may cut back on hiring or lay off workers to manage rising costs, hence the correct answer is C: rises.

According to the law of short-run aggregate supply, higher prices typically incentivize producers to increase production because they anticipate higher profits. This is because in the short term, higher prices can persist without immediately being eroded by increases in input costs. Consequently, the correct answer in this context is D: higher prices create incentives for increased production through higher profits.