Answer to Question 1
Demand-pull inflation starts with an increase in aggregate demand. This increase can arise by increases in the quantity of money, increases in government expenditure, or increases in net exports because any of these three shift increase aggregate demand and shift the AD curve rightward. The increase in aggregate demand leads to a higher price level and, temporarily, a higher level of real GDP. If the economy began at full employment, then temporarily the level of real GDP will be above potential. In the long run, however, the money wage rate rises to offset the increase in the price level, so aggregate supply decreases and the AS curve shifts leftward. The decrease in aggregate supply also raises the price level. So the only way the inflation can continue is if aggregate demand continues to increase.
Answer to Question 2
The statement is wrong on two counts. First, if the Fed makes an open market purchase of government securities, the quantity of money will increase rather than decrease. Second, the money multiplier points out that the change in the quantity of money will be greater than, not less than, the initial change in the monetary base.
Critical thinking involves analysis in which the nurse examines patient data available from a variet
Start the valve adjustment procedure by first disconnecting and labeling, if necessary, all ...
The introduction of a new generation of electric and hybrid cars will reduce the demand for oil
The demand for energy is met by burning coal and other fossil fuels
Oatmeal and other whole grain cereals are good sources of carbohydrates to start your morning off
Sources and Actions of Vertebrate Hormones