The Fed is conducting an experiment wherein on the first day of each of a set of

Question

The Fed is conducting an experiment wherein on the first day of each of a set of successive months, money is injected into the economy as follows: $1 million the first month, $2 million the second month, $3 million the third, $1 million the fourth, $2 million the fifth, $3 million the sixth, and so on. Is the injection of money into the economy on the first day of a month a nonrandom variable a random variable, or a constant? Do you expect that the responhe of the price level to these changes is a nonrandom variable, a random variable, or a constant? Fully explain your reasoning?

Explanation / Answer

the injection of money into the economy is a random variable. But the response of price level will not be a random variable as any increase in the money supply will lead to increase in the price level in the economy. Thus, the price level in the economy will rise and it will be a non random variable.

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