Which Is True Concerning the Effect of an Increase in the Money

question 14

Multiple Choice

Which is true concerning the effect of an increase in the money supply compared to general equilibrium?

• A)Though it may increase GDP in the short run, its primary effect in general equilibrium is a higher price level.
• B)Though it may increase inflation in the short run, its primary effect in general equilibrium is higher GDP.
• C)Both GDP and the price level are likely to rise both in the short run and in general equilibrium.
• D)Neither GDP nor the price level is likely to be affected in the general equilibrium.

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Definitions:

Aggregate Expenditures

The total amount of spending on goods and services in an economy at a given overall price level and in a given time period.

Spending Multiplier

the ratio of the change in total national income to the initial change in spending that brought it about, illustrating how initial spending leads to increased total spending in an economy.

Aggregate Spending

Aggregate spending is the total amount of spending in an economy, including consumption, investment, government expenditures, and net exports during a specific period.

Autonomous Saving

The portion of savings of an economy that is independent of income levels, often related to baseline savings by consumers and companies.