# A) G decreases by 300 B) I decreases by 250 C) T increases by 300 D) both A and B 7) Consider the Quantity Theory as given by the Cambridge Equation:…

A) G decreases by 300 B) I decreases by 250 C) T increases by 300 D) both A and B 7) Consider the Quantity Theory as given by the Cambridge Equation: MV =PY. Given this information, which of the following events will cause the largest reduction in output? A) G decreases by 300 B) I decreases by 250 C) T increases by 300 D) both A and B 7) Consider the Quantity Theory as given by the Cambridge Equation: MV =PY. Recall that under the Quantity Theory, velocity, V, is assumed to be constant. Suppose that in 2005, the Fed increased money supply by 6%. In addition, you know that real GDP growth during 2005 was 2%. What was the inflation rate (approximately) in 2005? A) 4% B) 2% C) -4% D) 8% E) There is insufficient information to be able to calculate the answer.

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