Starting from Long-Run Equilibrium, If the Velocity of Money Increases

question 118

Multiple Choice

Starting from long-run equilibrium, if the velocity of money increases (due to, for example, the invention of automatic teller machines) , the Fed might be able to stabilize output by:

• A) decreasing the money supply.
• B) increasing the money supply.
• C) decreasing the price level.
• D) increasing the price level.

---

Definitions:

Imports

Goods and services purchased from other countries for domestic consumption, often contrasted with exports.

Reaction Function

In economics, it represents how one economic agent's decision changes in response to another's action, especially in competitive markets or games.

Demand Function

A mathematical representation showing the relationship between the quantity demanded of a good and its price, along with other determinants.

Marginal Cost

Additional cost incurred by increasing product or service production by one unit, emphasizing the concept of incremental expenditure.