If transactions costs are high, the economic pie may not be maximized

If the central bank targets the interest rate, it

a. must decrease interest rates in response to an increase in money demand. b. rules out the possibility of runaway inflation. b. can lead to runaway inflation if maintained too rigidly. d. Both a and c e. Both b and c

The equation of exchange is an ________ while the quantity theory of money is a theory that ________

A) accounting identity; assumes the money supply is constant B) accounting identity; assumes velocity is held constant C) accounting theory; assumes the price level is constant D) accounting theory; economists use to explain changes in real GDP