Develop a simple model of inflation by identifying at least two exogenous variables and describing, briefly, how the value of these exogenous variables will impact the rate of increase in the overall level of prices in the economy
What will be an ideal response?
Answers will vary. The most appropriate exogenous variables to identify are the (growth rate of) the quantity of money and the (growth rate of) output. The former is positively related to inflation; the latter is negatively related.
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Say's law argues that I. overproduction is typical in a market economy. II. supply creates its own demand
A) I only B) II only C) Both I and II D) Neither I nor II
If the actual price level exceeds the expected price level reflected in long-term contracts,
a. firms will find production more profitable than they had expected and will decrease the quantity of output supplied b. firms will find production less profitable than they had expected and will decrease the quantity of output supplied c. firms will find production less profitable than they had expected and will increase the quantity of output supplied d. unemployment will decrease