If the Money Supply Increases When There Is Much Idle

question 36

Multiple Choice

If the money supply increases when there is much idle capacity in the economy,

• A)most of the resulting rise in nominal GDP will be a result of price increases
• B)most of the resulting rise in nominal GDP will be a result of increases in real output
• C)most of the resulting rise in real GDP will be a result of increases in the price level
• D)most of the resulting rise in real GDP will be a result of increases in the interest rate
• E)only nominal GDP will change; real GDP will be unaffected

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Definitions:

Equilibrium Interest Rate

The interest rate at which the quantity of money demanded is equal to the quantity of money supplied, leading to a balance in the money market.

Loanable Funds

The supply of money available for borrowing in the financial market, determined by savings and demand for borrowing.

Loanable Funds

The money available for borrowing, the supply of which is influenced by savings and demand for investment.

Real Interest Rate

The interest rate adjusted for inflation, representing the real cost of borrowing or the real yield on savings.