Assuming That the Economy Is in the Long Run Equilibrium

question 128

Multiple Choice

Assuming that the economy is in the long run equilibrium at full employment, an increase in the money supply will cause a:

• A) proportional increase in the price level and no change in real GDP.
• B) proportional reduction in the price level and an increase in real GDP.
• C) proportional increase in the price level and an increase in real GDP.
• D) proportional increase in the price level and a reduction in real GDP.

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Definitions:

Interest Expense

The charge an entity incurs for using borrowed capital over a set period.

Interest Payable

The amount of interest expense that has accumulated but has not been paid by the end of the accounting period.

360-Day Year

An accounting assumption that a year consists of 360 days, which simplifies interest calculation by assuming each month has 30 days.

Warranty Expense

Costs a company incurs due to honoring a product warranty, covering repair and replacement of faulty products.