If wages and prices are flexible, then an anticipated change in the money supply will cause wages and prices to __________ the actual inflation rate.
A) increase at the same rate as
B) increase at a higher rate than
C) increase at a slower rate than
D) cannot be exactly predicted

Question

Quizplus · Accepted Answer

In an economy with flexible wages and prices, changes in the money supply will lead to proportional changes in both wages and prices. This means that if the money supply increases by a certain percentage, wages and prices will increase by the same percentage, resulting in a stable inflation rate. Similarly, if the money supply decreases, wages and prices will decrease accordingly, resulting in deflation. Therefore, the anticipated change in the money supply will cause wages and prices to increase at the same rate as the actual inflation rate.

If Wages and Prices Are Flexible, Then an Anticipated Change