Unit 5 , 2

Which of the following policies will most likely promote long-run economic growth?

Increasing funding for research and development

Which of the following changes is most likely to cause economic growth? *

An increase in human capital

Assume an economy is in long-run equilibrium and the central bank engages in an expansionary monetary policy for a prolonged time period. If the velocity of money is constant, which of the following is true according to the quantity theory of money?

Price level will increase at the same rate as the money supply.

Suppose the nominal GDP is $25 million, the price level is 1.25 , and the central bank has set the money supply at $10 million. What is the real GDP and the velocity of money according to the quantity theory of money?

Real GDP is $20 million, and the velocity of money is 2.5 .

Suppose that an economy with flexible wages and prices is in long-run equilibrium when the central bank contracts the money supply. What is the long-run effect on real output in the economy?

Real output is unchanged.