Suppose That Rising Productivity Increases Potential Output in Each Period

question 50

Multiple Choice

Suppose that rising productivity increases potential output in each period by 4%. What kind of monetary policy would be needed to maintain a zero rate of inflation at full employment?

• A) It should keep money supply constant.
• B) It should increase money supply by 4% per period.
• C) It should increase money supply by 4% in the first period and thereafter, hold money supply constant.
• D) It should decrease money supply by 4% each period.

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Definitions:

Practical Constraints

Limitations arising from real-world conditions that affect how a task or goal can be achieved.

Zeigarnik Effect

The psychological tendency to remember uncompleted or interrupted tasks better than completed tasks.

Goal Shielding

Refers to the cognitive process of protecting one’s primary goal from interference by secondary goals, ensuring focus and increasing the likelihood of achieving the primary objective.

Goal Shielding

The process by which focusing on a primary goal allows an individual to resist distractions and inhibit irrelevant actions, thus shielding the goal from disruption.