Suppose That Rising Productivity Increases Potential Output in Each Period

question 115

Multiple Choice

Suppose that rising productivity increases potential output in each period by 4%. Using the equation of exchange, 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:

Types

Categories or classifications that share common characteristics within a broader group or concept.

Observational Methods

Research techniques that involve watching and recording the behaviors of subjects in their natural environment without interference.

Participant Observation

A qualitative research method involving the immersion of the researcher in the environment of the subjects being studied, often while participating in their activities.

Social Situation

The immediate physical and social setting in which people are involved that influences their thoughts, feelings, and behaviors.