If the actual price level is less than the expected price level reflected in long-term contracts, _____.
a. firms will find production more profitable in the short run than they had expected and will decrease the quantity of output supplied
b. firms will find production less profitable in the short run than they had expected and will decrease the quantity of output supplied
c. firms will find production more profitable in the short run than they had expected and will increase the quantity of output supplied
d. resource owners will earn higher returns in the short run than they had expected and will decrease the quantity of resources supplied
e. unemployment will increase in the short run as firms will substitute labor with capital inputs
Question 2
Which of the following will result in the money market when the price level in an economy rises, while the supply of money remains unchanged?
a. The demand for money will decrease.
b. The supply of money will increase.
c. The rate of interest will decrease.
d. The total investment spending in the economy will increase.
e. The rate of interest will increase.
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