Paper 1 · National Income and Economic Growth
If nominal value of income rises by 20% and the amount of money in circulation remains the same, then
Aper capita output has risen by 20%.
Breal national income remains constant.
Cthe general price level has fallen by 20%.
Dthe income velocity of circulation has increased by 20%.
Explanation: Using the quantity theory MV = PY: if M is constant and nominal income (PY) rises by 20%, then V must rise by 20% — but the question asks which statement is true. If nominal income rises by 20% and M is constant, V rises by 20%. However the marking scheme gives answer B. Real national income remains constant if all the nominal rise is due to price rises — but the question does not say prices rose. The marking scheme answer is B.
ZIMSEC Economics Paper 1, November 2009, Q30
