If Real GDP Increases at an Annual Rate of 4

question 67

Multiple Choice

If Real GDP increases at an annual rate of 4 percent and velocity increases at a rate of 2 percent per year,then rules-based monetary policy advocates who wish to maintain a stable price level would set the annual money supply growth rate at

• A) -2 percent.
• B) 0 percent.
• C) 1 percent.
• D) 2 percent.
• E) -1 percent.

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Definitions:

Inferior Good

A type of good whose demand decreases when consumer income rises, unlike normal goods, which see an increase in demand with rising income.

Income Elasticity

A measure of how much the quantity demanded of a good responds to a change in consumers' income.

Labor-supply Curve

A graphical representation showing the relationship between the wage rate and the quantity of labor workers are willing to supply.

Elasticity Positive

Positive elasticity indicates that when the price of a good or service increases, the quantity demanded increases, or vice versa, showing a direct relationship between price and demand.