Author Question: A government policymaker suggests Double the money supply and U.S. citizens' real incomes will ... (Read 42 times)

crobinson2013 · **on:** Jun 29, 2018

A government policymaker suggests Double the money supply and U.S. citizens' real incomes will double. In the long run, is this policy advice correct?

What will be an ideal response?

Question 2

A distinction between stocks and bonds is that

A) although the return on a bond is determined by the forces of supply and demand, the return on a stock is set by the stock exchange.
B) stocks represent ownership claims to the company and bonds do not.
C) bonds must be held for a fixed number of years whereas stocks can be bought and sold at any time.
D) bonds can be traded many times in the bond market, while stocks are non-transferable.
E) bonds cannot be sold to anyone other than the company that issued it while stocks can be resold to anyone.

coyin · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

This statement is incorrect because in the long run an increase in the quantity of money increases only the price level. Indeed, it increases the price level by the same percentage. So if the Fed followed the advice and increased the quantity of money by 100 percent (which doubles it), then in the long run the only effect is to increase the price level by 100 percent.

Answer to Question 2

B