In an Economy in Which Real Output Grows at an Average

question 71

Multiple Choice

In an economy in which real output grows at an average rate of 3 percent per year, a 7 percent average rate of growth in the money supply would result in

• A) an inflation rate of 4 percent, if velocity were constant.
• B) an inflation rate of −4 percent, if velocity were constant.
• C) a $4 increase in the price level per year.
• D) a $4 decrease in the price level per year.

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Definitions:

Short-Term Benefit

Refers to immediate rewards or perks provided to employees, including bonuses, sick leave, and temporary incentives.

Long-Term Benefit

Advantages or positive outcomes that accrue over an extended period, often associated with investments or strategic business decisions.

Shareholder Needs

The requirements or interests of individuals or entities that own shares in a corporation, often focused on return on investment.

Price Appreciation

The increase in the value of an asset or investment over time, not including the dividends or interest earned.