Figure 34-2

question 298

Multiple Choice

Figure 34-2. 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 34-2. 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:

Rising Incomes

An economic condition where individuals or populations experience an increase in their disposable income, often leading to changes in spending habits and economic growth.

Cost of Lumber

The expense associated with purchasing wood used for construction and manufacturing, which can vary based on supply and demand.

Demand

The quantity of a good or service that consumers are willing and able to purchase at various price levels at a given point in time.

Supply

The total amount of a good or service available for purchase at any given price level within a defined market.