Suppose households attempt to increase money holdings. To stabilize output and employment, the Federal Reserve will _____

In the Keynesian model in the long run, a decrease in the money supply will cause

A) a decrease in output and an increase in the real interest rate. B) an increase in the real interest rate but no change in output. C) a decrease in the real interest rate and a decrease in output. D) no change in either the real interest rate or output.

Which of the following is a reason why the Consumer Price Index (CPI) is not calculated as a simple average of all prices?

a. Some goods experience large price changes and the CPI would be too variable if computed by a simple average. b. Goods differ in their importance in the average consumer's budget. c. Some goods never experience price changes and the CPI would not be variable enough if computed as a simple average. d. It would be difficult to compute a price index using a simple average of all prices. e. Actually, the CPI is a simple average of all prices.