In the Long-Run ISLM Model and with Everything Else Held

question 11

Multiple Choice

In the long-run ISLM model and with everything else held constant,the long-run effect of an expansionary monetary policy is to

• A)increase real output and the interest rate.
• B)not change either real output or the interest rate.
• C)increase real output and leave the interest rate unchanged.
• D)increase the interest rate and leave real output unchanged.

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Definitions:

Marginal Output

The additional output produced as a result of using one more unit of a particular input while keeping other inputs constant.

Variable Costs

Costs that change in proportion to the level of output or business activity.

Total Revenue

The overall income generated by a firm from its sales activity, calculated as the quantity sold multiplied by the selling price.

Fixed Costs

Costs that do not vary with the level of production or sales, such as rent, salaries, and insurance premiums.