Which of the following summarizes the feedback loop discussed in the video?
A. As the money supply increased, real GDP decreased, which caused the money supply to increase even faster, and so on.
B. As the money supply increased, prices rose, which caused the money supply to increase even faster, and so on.
C. As prices rose faster, the government had to print even more money, which caused prices to rise even faster, and so on.
D. As prices rose faster, real GDP increased, which caused prices to rise even faster, and so on.
Answer: C. As prices rose faster, the government had to print even more money, which caused prices to rise even faster, and so on.
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Aggregate demand will be affected by the purchasing power of money
Indicate whether the statement is true or false
A critical assumption differs from a simplifying assumption in that a critical assumption
a. is a means of getting rid of extraneous details in the model b. cannot affect the conclusions of the model c. can affect the conclusions of the model d. is rarely used in economic models e. is never a fundamental assumption