If the Economy Is Initially at Potential GDP and People

question 390

Multiple Choice

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

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

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Definitions:

Spuriousness

A situation in statistical analysis where a perceived correlation or association between two variables is actually caused by a third variable.

Correlation

A measure of how strongly two variables are related to each other.

Causation

The action of causing something, in research it generally refers to the relationship between variables where one variable directly affects another.

Theoretical Perspective

A basic set of assumptions that guides research and theory in social sciences, providing a specific viewpoint or lens for interpretation.