In the short run, when the central bank increases the quantity of money, what happens to real balances?
a. They do not change, since prices will rise by the same proportion.
b. They will fall, since prices will rise by a greater proportion.
c. They will rise, since prices overall will fall.
d. They will rise, since prices will not change in the short run.
Ans: d. They will rise, since prices will not change in the short run.
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Refer to Figure 4-12 which shows the market for vitamins. Suppose the government imposes a price ceiling of Pv. How will the price ceiling affect the quantity supplied, quantity demanded, and quantity exchanged?
What will be an ideal response?
In a market where supply and demand curves are both highly inelastic, a price ceiling will have a(n)
a. large effect on quantity supplied and little effect on quantity demanded b. large effect on quantity demanded and little effect on quantity supplied c. large effect on both quantity demanded and quantity supplied d. little effect on both quantity demanded and quantity supplied e. effect only on price