Suppose the Full-Employment Level of Real GDP Is Increasing at a Rate

question 17

Multiple Choice

Suppose the full-employment level of real GDP is increasing at a rate of 3% per period and the money supply is growing at a 4% rate. Using the equation of exchange, what is the value of the long-run inflation rate, assuming constant velocity?

• A) 7%
• B) 4%
• C) 1%
• D) -1%

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Definitions:

Employed

Individuals who are currently working in a job, including both full-time and part-time positions.

Efficiency Wages

Wages set above the market equilibrium to increase worker productivity, reduce turnover, and avoid shirking.

Bureau of Labor Statistics

A U.S. government agency that collects and disseminates various labor economics statistics, including unemployment and wage data.

Labor Force

The total number of people, both employed and unemployed, who are actively seeking and available for work in the economy.