Suppose That the Money Supply Increases

question 102

Multiple Choice

Suppose that the money supply increases. According to the Phillips curve model, what are the effects of this policy change?

• A) It decreases unemployment in the short run.
• B) It decreases inflation in the long run.
• C) It decreases unemployment in the long run.
• D) It decreases inflation in the short run.

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Definitions:

Long-run Equilibrium

A state in which supply equals demand and all factors of production and markets are in balance, typically considered in the context of perfect competition.

Purely Competitive

A market scenario where products are identical, leading to numerous sellers and buyers where no single entity can influence market prices.

Marginal Cost

The cost of producing one additional unit of a product or service, crucial for decision-making about production levels and pricing.

Opportunity Cost

The cost of foregone alternatives when one choice is made over another, representing the benefits that could have been gained by choosing the next best alternative.