In the Classical Model, an Increase in the Money Supply

question 75

Multiple Choice

In the classical model, an increase in the money supply will result in:

• A) inflation only, without affecting aggregate output.
• B) economic expansion, as aggregate output will increase.
• C) higher interest rates, lower investment, and ultimately lower aggregate output.
• D) recession only, without affecting the aggregate price level.

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Definitions:

Elasticity of Demand

A measure of how much the quantity demanded of a good responds to a change in the price of that good, with higher elasticity indicating greater responsiveness.

Degree of Elasticity

A measure of how much the quantity demanded of a good responds to a change in the price of that good, providing insight into the good's price sensitivity.

Availability of Substitutes

The presence of alternative products or services that consumers can choose instead of the primary product, affecting the demand and price elasticity of goods.

Demand for Gasoline

The consumer's desire and willingness to pay for gasoline, influenced by its price, consumer income, and the prices of substitutes and complements.