In the short run, an unanticipated increase in the money supply will exert its primary impact on
a. output and employment rather than on prices.
b. prices; output and employment will be largely unaffected.
c. interest rates; rising interest rates will stimulate additional saving.
d. prices, if the economy operates at an output level below its long-run supply constraint.
A
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The quantity of new cars increases by 10 percent. If the price elasticity of demand for new cars is 1.25, the price of new cars will fall by
A) 2.5 percent. B) 8 percent. C) 10 percent. D) 12.5 percent.
All of the following arguments are presented in favor of inflation targeting EXCEPT
A) it would draw attention to what the central bank can achieve in practice. B) it would provide an anchor for inflationary expectations. C) it would promote accountability by providing a yardstick by which policy can be measured. D) it would reduce the lags inherent in monetary policy.