In the Figure Above, in the Long Run What Happens

question 92

Multiple Choice

In the figure above, in the long run what happens if the Fed increases the quantity of money by 5 percent?

• A)The real interest rate falls and the LRMD curve shifts rightward.
• B)The nominal interest rate rises by 5 percent.
• C)The price level rises by 5 percent and the LRMD shifts leftward.
• D)The value of money rises by 5 percent.
• E)The value of money falls by 5 percent and there will be a movement down along the LRMD curve.

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Definitions:

Profit Maximization

The process in which a company calculates the most profitable pricing and production volume.

Production Function

An equation that describes the relationship between inputs used in production and the output generated from those inputs.

Factor Prices

The market prices of the inputs used in production, such as labor, capital, and land.

Minimum Cost

The lowest possible expense that can be incurred in the production of a good or service without sacrificing the quality or quantity.