Suppose that rising productivity increases potential output in each period by 4%. What kind of monetary policy would be needed to maintain a zero rate of inflation at full employment?
A. It should keep money supply constant.
B. It should increase money supply by 4% in the first period and thereafter, hold money supply constant.
C. It should increase money supply by 4% per period.
D. It should decrease money supply by 4% each period.
Ans: C. It should increase money supply by 4% per period.
Economics
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The wealth effect is another term for the
A) the interest rate effect. B) the real-balance effect. C) substitution effect. D) the indirect effect.
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Which of the following statements is true?
A) Firms normally prefer wage cuts over lay-offs. B) Cuts in wages boost worker morale. C) Workers normally resist increases in wages. D) Wage rigidity can cause unemployment.
Economics