In the Long Run, the Effect of a Reduction in the Money

question 211

Multiple Choice

In the long run, the effect of a reduction in the money supply is to

• A) decrease the price level only.
• B) decrease real Gross Domestic Product (GDP) only.
• C) decrease both the price level and real Gross Domestic Product (GDP).
• D) decrease the price level and increase real Gross Domestic Product (GDP).

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Definitions:

Condorcet Paradox

A situation in social choice theory where collective preferences can be cyclic (not transitive) despite the transitive preferences of individual voters.

Majority Rule

A decision-making principle where the preferences or decisions supported by more than half of the participants are adopted.

Transitive Preferences

A condition in decision-making where if an individual prefers option A over option B and prefers option B over option C, then the individual also prefers option A over option C.

Median voter theorem

A theory suggesting that the outcome of a majority rule voting system will represent the preferences of the median voter.