Which of the following explains why higher prices in the goods and services market measured by the CPI leads to an upward-sloping aggregate supply curve?
a. The higher prices will temporarily improve profit margins because the cost of wages and salaries are fixed in the short run.
b. The higher prices will reduce the purchasing power of the fixed quantity of money and, thereby, stimulate additional output.
c. The higher prices will expand the economy's resource base and, thereby, stimulate additional output.
d. The higher prices will improve technology and, thereby, stimulate additional output.
Question 2
If the fractional reserve system did not exist,
a. the banking system could not create money.
b. there would be no effect on the ability of the banking system to create money.
c. banks would loan out its required reserves.
d. banks would be highly susceptible to bank runs.
e. the banking system would realize the money multiplier.
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