Figure 24-2

Multiple Choice

Figure 24-2.On the left-hand graph,MS represents the supply of money and MD represents the demand for money; on the right-hand graph,AD represents aggregate demand.The usual quantities are measured along the axes of both graphs.

-Refer to Figure 24-2.Assume the money market is always in equilibrium,and suppose r₁ = 0.08; r₂ = 0.12; Y₁ = 13,000; Y₂ = 10,000; P₁ = 1.0; and P₂ = 1.2.Which of the following statements is correct?

A) When r = r₂,nominal output is higher than it is when r = r₁.
B) When r = r₂,real output is higher than it is when r = r₁.
C) When r = r₂,the expected rate of inflation is higher than it is when r = r₁.
D) If the velocity of money is 4 when r = r₂,then the quantity of money is $3,000.