Assume that workers and businesses are sensitized to inflation and are quick to raise wages and prices in response to changes in the money supply. This implies that inflation is _____ and there are _____ adjustments of wages and prices of intermediate goods.
A) high; quick
B) low; quick
C) high; slow
D) low; slow

Question

Quizplus · Accepted Answer

If workers and businesses are quick to raise wages and prices in response to changes in the money supply, this means that there will be a high level of inflation and quick adjustments of wages and prices of intermediate goods. This is because any increase in the money supply will quickly lead to an increase in demand for goods and services, which will lead to an increase in prices. As prices rise, workers will demand higher wages to compensate for the increased cost of living, and businesses will also raise prices to maintain their profit margins. This cycle will continue until the economy reaches a new equilibrium at a higher level of prices and wages.

Assume That Workers and Businesses Are Sensitized to Inflation and Are