If Only Unanticipated Changes in the Money Supply Affect Real

question 94

Multiple Choice

If only unanticipated changes in the money supply affect real GDP, the public has rational expectations, and everyone has the same information about the state of the economy, then:

• A) monetary policy can be used to systematically stabilize output.
• B) monetary policy cannot be used to systematically stabilize output.
• C) a policy of keeping the money supply constant is optimal.
• D) a policy of adjusting the money supply in response to the state of the economy is optimal.

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Definitions:

Gross Profit

The financial metric representing the difference between sales and the cost of goods sold.

Significant Influence

The power to participate in the financial and operating policy decisions of an investee, but not control them.

Common Stock

Equities representing ownership in a corporation, giving holders voting rights and a share in the company's profits via dividends.

Equity Method

An accounting technique used to record investments in other companies, where the investment's value is adjusted to reflect the investor's share of the company's post-acquisition earnings or losses.