Figure 7-4 -According to the Classical Economists When Output Y Rises Above

question 28

Multiple Choice

Figure 7-4

-According to the classical economists when output Y rises above the natural rate of employment,wages and prices would

• A)fall causing output to rise;unemployment would be permanent.
• B)rise causing output to rise;increased employment would be temporary.
• C)rise causing output to fall;increased employment would be temporary.
• D)fall causing output to fall;unemployment would be temporary.

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Definitions:

Per-capita Income

The average income earned per person in a certain area, calculated by dividing the area's total income by its total population.

Rational Expectations School

An economic idea that assumes individuals make predictions about the future based on all available information and past experiences in a rational manner.

Monetary Policy

The process by which a central bank controls the supply of money in an economy, typically targeting inflation, employment, and economic growth.

Potential Level

The potential level of output, or potential GDP, is the maximum amount of goods and services an economy can produce when it is fully utilizing its resources, without causing inflation to rise.