Given the Expected Price Level, What Size of Money Supply

question 29

Multiple Choice

Given the expected price level, what size of money supply will best facilitate policies for the achievement of potential GDP?  

• A) a large money supply, so that prices at potential GDP are below expectations and people can afford to buy enough goods to support the natural level of employment 
• B) a large enough money supply that prices at potential GDP are above expectations and firms can afford to hire workers 
• C) a small money supply, so that prices at potential GDP are above expectations and firms can afford to hire the workers 
• D) a money supply that is exactly the size needed to make prices equal to the prices people expect to prevail

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Definitions:

Equivalent Interest Rate

The interest rate that gives the same compounded financial outcome as other rates calculated over different time periods.

Nearest 0.01%

Rounding off a numerical figure to the closest one hundredth of a percent.

Equivalent Interest Rate

A rate that provides the same accumulated interest as would be obtained from several other interest rates over a given time period.

Nearest 0.01%

Adjusting a value so that it is close to an exact hundredth of a percent, enhancing precision.