If the Monetary Authorities Decide to Increase the Nominal Money

question 11

Multiple Choice

If the monetary authorities decide to increase the nominal money supply by 10% when the economy is at its full-employment level of output, in the long run the aggregate price level increases by _____% and real GDP _____.

• A) 10; increases by 10%
• B) 5; increases by 5%, according to Okun's law
• C) 10; returns to the potential level of output
• D) 5; increases by 20%, given a marginal propensity to consume of 0.5

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Definitions:

Reinforcement Theory

A theory in psychology that suggests behavior is motivated by its consequences, with reinforcements used to either increase or decrease the likelihood of a behavior’s occurrence.

Motivate Employees

The process of encouraging and inspiring workers to improve their performance or to achieve specific goals through various strategies and incentives.

Expectancy Theory

Expectancy Theory is a motivational theory that suggests an individual’s behavior is determined by their expected outcomes and the attractiveness of those outcomes.

Instrumentality

The perception that a certain level of performance will lead to the attainment of a desired outcome.