Macroeconomics Theories and Policies
Quiz 5 :
Classical Macroeconomics II
According to the quantity theory,holding the velocity and supply for money constant,a lower price level means that the same level of money can conduct more transactions,so the level of transactions increases.An increase in the money supply means that a higher level of transactions can be supported for every value of the price level.
According to the quantity theory,countries with a higher level of output will have a lower price level holding the money supply and velocity constant.As a result,the faster growing country will experience lower inflation.
An increase in labor-enhancing technology will shift the production function upwards,which will increase labor demand and increase the real wage.This will increase the aggregate supply curve,which increases output and reduces the price level.