Figure 16-2

question 221

Multiple Choice

Figure 16-2. On the left-hand graph, MS represents the supply of money and MD represents the demand for money; on the right-hand graph, AD represents aggregate demand. The usual quantities are measured along the axes of both graphs.

-Refer to Figure 16-2. Assume the money market is always in equilibrium, and suppose r₁ = 0.08; r₂ = 0.12; Y₁ = 13,000; Y₂ = 10,000; P₁ = 1.0; and P₂ = 1.2. Which of the following statements is correct?

• A) When r = r₂, nominal output is higher than it is when r = r₁.
• B) When r = r₂, real output is higher than it is when r = r₁.
• C) When r = r₂, the expected rate of inflation is higher than it is when r = r₁.
• D) If the velocity of money is 4 when r = r₂, then the quantity of money is $3,000.

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Definitions:

Native-born Workers

Employees who were born in the country where they are working, as opposed to immigrant or foreign workers.

Wage-gap

is the difference in average earnings between different groups of workers, often used to discuss disparities based on gender, race, or education.

Migration Costs

Expenses and sacrifices associated with moving from one location to another, which can include monetary costs, emotional strain, and time.

Substitute Resources

Resources or inputs that can be used in place of each other in the production process.