Figure 21-2

question 264

Multiple Choice

Figure 21-2. On the left-hand graph, MS represents the supply of money and MD represents the demand for money; on the right-hand graph, AD represents aggregate demand. The usual quantities are measured along the axes of both graphs.
-Refer to Figure 21-2. Assume the money market is always in equilibrium, and suppose r₁ = 0.08; r₂ = 0.12; Y₁ = 13,000; Y₂ = 10,000; P₁ = 1.0; and P₂ = 1.2. Which of the following statements is correct?

• A)When r = r₂, nominal output is higher than it is when r = r₁.
• B)When r = r₂, real output is higher than it is when r = r₁.
• C)When r = r₂, the expected rate of inflation is higher than it is when r = r₁.
• D)If the velocity of money is 4 when r = r₂, then the quantity of money is $3,000.

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Definitions:

Myelin Sheaths

Insulating layers around nerves that increase the speed at which electrical impulses are transmitted.

Interneuron

A type of neuron that serves as a connector or intermediary between sensory neurons and motor neurons in the central nervous system.

Central Nervous System

Comprises the brain and spinal cord, responsible for coordinating body activities.

Schwann Cells

Specialized cells that form the myelin sheath around nerve fibers in the peripheral nervous system, aiding in the rapid transmission of electrical signals.