Asked by Michael Megler on Jul 14, 2024
Verified
Given the expected price level,policies for reaching potential GDP will work best if the money supply is:
A) large,so that prices at potential GDP are below expectations and people can afford to buy enough goods to support the natural level of employment.
B) large enough,so that prices at potential GDP are above expectations and firms can afford to hire workers.
C) small,so that prices at potential GDP are below expectations and people can afford to buy enough goods to support the natural level of employment.
D) small,so that prices at potential GDP are above expectations and firms can afford to hire the workers.
E) exactly the size that makes prices equal to the prices people expected to prevail.
Money Supply
The total amount of money available in an economy at a particular time, including cash, coins, and balances held in checking and savings accounts.
Expected Price Level
This term represents the anticipated average price of goods and services in an economy over a certain period.
Potential GDP
The maximum possible level of output an economy can achieve when all resources are utilized efficiently, without causing inflation.
- Ascertain the situations wherein macroeconomic approaches realize their anticipated effects.
Verified Answer
AB
Angie BailonJul 19, 2024
Final Answer :
E
Explanation :
An appropriately sized money supply that aligns actual prices with expected prices facilitates economic stability, ensuring that both consumers and producers can make decisions based on accurate price expectations, thereby supporting the economy at its potential GDP.
Learning Objectives
- Ascertain the situations wherein macroeconomic approaches realize their anticipated effects.