Assuming Full Employment in the Classical Model, If Velocity Increases

question 328

Multiple Choice

Assuming full employment in the classical model, if velocity increases and the government wants stable prices, the government should

• A) increase the money supply.
• B) decrease the money supply.
• C) do nothing.
• D) increase government spending.

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Definitions:

Per Capita GDP Growth

The rate of growth of the Gross Domestic Product (GDP) per person in a specific area, commonly used to indicate economic health and living standards.

Labor Productivity Growth

An increase in the amount of goods and services produced per hour worked by employees, which is a key determinant of economic growth and competitiveness.

Labor-Capital Ratio

The ratio of labor inputs to capital inputs in production, reflecting the relationship between the workforce and machinery or capital assets.

Physical Capital

The stock of tangible assets, like machinery, buildings, and vehicles, used in the production of goods and services.