AP Macroeconomics Question 356: Answer and Explanation
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3. Which of the following statements is true?
- A. The velocity of money is equal to real GDP divided by the money supply.
- B. Dollars earned today have more purchasing power than dollars earned a year from today.
- C. The supply of loanable funds consists of investors.
- D. The demand for loanable funds consists of savers.
- E. Expansionary fiscal policy shifts the money supply curve to the right, lowering interest rates.
Correct Answer: B
B-Choice (A) is incorrect because the equation of exchange defines the velocity of money as nominal GDP divided by money supply. The supply of loanable funds includes savers, not investors. Fiscal policy shifts the AD curve, not the money supply curve.