Starting from Short-Run Equilibrium,the Following Occurs: the Money Supply Increases

question 20

Multiple Choice

Starting from short-run equilibrium,the following occurs: the money supply increases and labor productivity increases.What is the effect on the price level and Real GDP in the short run?

• A) Real GDP falls and the price level necessarily rises.
• B) Real GDP rises and the price level necessarily rises.
• C) Real GDP rises and the effect on the price level cannot be determined.
• D) Real GDP falls and the effect on the price level cannot be determined.
• E) none of the above

---

Definitions:

Debt-equity Ratio

The ratio highlighting the financial mix of equity and debt used in the acquisition of company assets.

Break-even Level

The juncture where overall expenses match the total income, leading to neither a net profit nor a loss.

M&M Theory

Modigliani and Miller's theory positing that in an ideal market, a company's value is unaffected by how it is financed, whether through debt or equity.

Capital Structure

The mix of a company's long-term debt, specific short-term debt, common equity, and preferred equity which funds its overall operations and growth.