Question

In the long run, an increase in the stock of human capital a. and increases in the money supply both make the price level rise. b. and increases in the money supply both make the price level fall. c. makes the price level rise, while increases in the money supply make prices fall. d. makes the price level fall, while increases in the money supply make prices rise.

Answer 1

Answer:

d. makes the price level fall, while increases in the money supply make prices rise.

Explanation:

With everything else constant (ceteris paribus principle) and total freedom in the labor market (non-existence of minimum wage), an increase in human capital will increase the supply of employment making the salaries going doing. As a productive factor, cheaper labor cost will decrease the overall cost of the products, making it possible to offer the same amount of production by lower prices. An increase in the money supply will incentivize the private sector to increase production and therefore hire more people. The incremental in employment will increase the aggregate demand pushing prices up.