Is keeping money growth low when the central bank can accurately forecast real growth a guarantee that short-run inflation will not occur? Explain
What will be an ideal response?
No. The velocity of money can be volatile in the short run and increases in the velocity of money, even with low money growth, can cause the price level to increase well above the objectives set by policymakers. For policymakers to use money growth targets to stabilize inflation requires they understand how velocity changes.
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Everything else held constant, aggregate demand increases when
A) taxes are cut. B) government spending is reduced. C) animal spirits decrease. D) the money supply is reduced.
The above figure shows Bobby's indifference map for juice and snacks. Also shown are three budget lines resulting from different prices for snacks. As the price of snacks rises, Bobby's utility
A) stays the same. B) increases. C) decreases. D) might change, but there is not enough information to determine.