Refer to the Graph Above, in Which D_t Is the Transactions

question 14

Multiple Choice

Refer to the graph above, in which D_t is the transactions demand for money, D_m is the total demand for money, and S_m is the supply of money. The market is in equilibrium at the 6 percent rate of interest. If the money supply then decreases as shown, the transaction demand for money will change by:

• A) $175
• B) $125
• C) $75
• D) $0

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Definitions:

Average Total Cost

the total cost of production divided by the number of units produced, reflecting the average cost per unit of output.

Average Variable Cost

The total variable costs of production divided by the number of units produced, indicating the variable cost per unit.

Economies of Scale

Cost advantages that enterprises obtain due to their scale of operation, with cost per unit of output generally decreasing with increasing scale as fixed costs are spread out over more units of output.

Diseconomies of Scale

The phenomenon where production costs per unit increase as a firm or production process scales up, contrary to economies of scale where costs decrease.