Monetary policy and fiscal po licy scavenger hu nt In a 25 year perio d, the CPI has shown thatthe cost of a basket of go ods has risen by 150%. What action can the Federal Reserve take on reserve requirements to help reverse this trend? LOD n H

According to the Quantity Theory of Money, if the velocity of money is constant, and if the money supply increases, while at the same time real GDP decreases, then, ceteris paribus, it follows that in the long run: Select one: O a. the price level will increase - i.e. the economy will experience inflation. O b. the price level will decrease - i.e. the economy will experience deflation. O c. nominal GDP must be decreasing. O d. none of the above is mathematically possible.

Price P3 P₂ 2 P₁ Figure A Q₁ Quantity D3 -D2 D₁ Price P₁ Figure B Q₁ Q₂ Q3 Quantity Which of the following events would most likely result in inflation? OA shift from D2 to D1 in Figure A. O A shift from D2 to D3 in Figure A. O A shift from D2 to D₁ in Figure B. O A shift from D2 to D3 in Figure B. D3 D₂ D₁

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