If wages and prices are flexible, an anticipated change in the money supply has no effect on
A) money demand.
B) nominal interest rates.
C) real GDP.
D) the inflation rate.

Question

Quizplus · Accepted Answer

If wages and prices are flexible, changes in the money supply only affect nominal variables, such as nominal interest rates and nominal GDP, but not real variables, such as real GDP. Therefore, the anticipated change in the money supply will not affect the real GDP.

If Wages and Prices Are Flexible, an Anticipated Change in the Money