An Increase in Aggregate Demand with No Adjustment in Monetary

question 46

Multiple Choice

An increase in aggregate demand with no adjustment in monetary policy will result in:

• A)An increase in potential output and higher inflation
• B)A decrease in potential output and higher inflation
• C)No change in potential output but higher inflation
• D)No change in inflation

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Definitions:

Isocost Line

A line representing all combinations of the inputs that cost the same total amount for production.

Isoquant

Curve showing all possible combinations of inputs that yield the same output.

Minimum Cost

The lowest possible expenditure to produce a given quantity of goods or services.

Expansion Path

Curve passing through points of tangency between a firm’s isocost lines and its isoquants.