Suppose That Neither Output nor the Money Supply Has Been

question 21

Multiple Choice

Suppose that neither output nor the money supply has been growing. In the new classical view, if the Chairman of the Fed announces a 10% increase in the money supply and then takes actions that cause the money supply to grow by only 5%, the result will be that

• A)the price level will increase, but output will decrease.
• B)output will increase, but the price level will not.
• C)neither output nor the price level will increase.
• D)both the price level and output will increase.

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Definitions:

Vertical Analysis

A method of financial statement analysis in which each entry for each of the three major categories of accounts (assets, liabilities, and equity) is represented as a proportion of the total account.

Debt To Total Assets Ratio

A financial metric that indicates the percentage of a company's assets that are financed by debt.

Interest On Debt

The cost incurred by an entity for borrowing funds, which is paid as a fee over time to the lender.