You Are the Head of the Central Bank and You

question 77

Multiple Choice

You are the head of the central bank and you want to maintain 2 percent long-run inflation. Using the quantity theory of money, if real GDP growth is 4 percent and velocity is constant, you suggest a:

• A) 4 percent money supply growth
• B) 6 percent interest rate
• C) 2 percent money supply growth
• D) 0 percent money supply growth
• E) None of these answers are correct.

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Definitions:

Inelastic Demand

A situation in which demand for a good or service is barely affected by changes in price.

Elastic Demand

When consumer demand for a product significantly rises or falls following a small change in its price.

Price Discrimination

The practice of selling the same product to different buyers at different prices, based on factors other than cost.

Consumer Surplus

The difference between the total amount consumers are willing to pay for a good or service and the actual amount they pay.