If the Economy Is at Potential Output and the Fed

question 245

Multiple Choice

If the economy is at potential output and the Fed increases the money supply so that actual output exceeds potential output, eventually nominal wages will:

• A) increase.
• B) decrease.
• C) remain the same.
• D) fluctuate randomly.

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Definitions:

Deadweight Loss

It represents the loss of economic efficiency when the equilibrium for a good or a service is not achieved or is not achievable.

Excise Tax

A tax directly levied on certain goods, services, or activities, such as tobacco, alcohol, or fuel, usually to discourage their use or generate revenue.

Short Run

A period during which at least one input (e.g., plant size, technology) is fixed, and firms can adjust only the variable inputs (e.g., labor).

Excise Tax

A tax imposed on specific goods, services, or activities, often included in the price of items like gasoline, alcohol, and tobacco.