If Severe Demand-Pull Inflation Was Occurring in the Economy, Proper

question 331

Multiple Choice

If severe demand-pull inflation was occurring in the economy, proper government policies would involve a government

• A) budget deficit, the purchase of securities in the open market, a higher discount rate, and higher reserve requirements.
• B) budget deficit, the sale of securities in the open market, a higher discount rate, and lower reserve requirements.
• C) budget surplus, the sale of securities in the open market, a higher discount rate, and higher reserve requirements.
• D) budget surplus, the purchase of securities in the open market, a lower discount rate, and lower reserve requirements.

---

Definitions:

Long-Run

A period of time in economics during which all factors of production and costs are variable, allowing for complete adjustment to changes.

Average Total Cost

The sum of average variable costs and average fixed costs, or simply the total cost divided by the quantity of output produced.

Constant-Cost Industry

An industry in which the entry and exit of firms have no effect on the prices firms in the industry must pay for resources and thus no effect on production costs.

Resource Prices

The costs associated with acquiring the inputs or factors of production, such as labor, capital, and natural resources.