Suppose resource owners anticipated a monetary growth rate of 6 percent, but the money supply actually grew at only 2 percent.How would output be affected?
A) Output would remain the same.
B) Output would fall.
C) Output would increase.
D) Output would increase, but only if nominal wages increased more rapidly than prices.

Question

Suppose resource owners anticipated a monetary growth rate of 6 percent, but the money supply actually grew at only 2 percent.How would output be affected?  
A) Output would remain the same. 
B) Output would fall. 
C) Output would increase. 
D) Output would increase, but only if nominal wages increased more rapidly than prices.

Quizplus · Accepted Answer

If resource owners anticipated a monetary growth rate of 6 percent but the money supply grew at only 2 percent, this means that the actual inflation rate would be lower than expected. As a result, prices would not increase as much as expected, and resource owners would end up receiving less revenue than anticipated. This would lead to a reduction in their supply of resources, which would in turn decrease output. Therefore, output would fall.

Suppose Resource Owners Anticipated a Monetary Growth Rate of 6