If People Correctly Anticipate an Increase in Inflation So That

question 193

Multiple Choice

If people correctly anticipate an increase in inflation so that their money wage rate adjusts immediately, then, assuming the economy is initially at potential GDP,

• A) only the price level rises with no change in real GDP.
• B) only real GDP increases with no change in the price level.
• C) neither the price level nor real GDP increase.
• D) both the price level and real GDP increase.

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Definitions:

Coase Theorem

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