FIGURE 27-5 0 0

FIGURE 27-5
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-Refer to Figure 27-5. This economy begins in equilibrium with M S , M D and real GDP equal to potential
GDP with AD0 and AS0) . Now suppose there is an increase in the money supply to $540 billion. According to the Classical economists of the eighteenth and nineteenth centuries,

A) the neutrality of money holds in the long run, but in the short run changes in the money supply cause significant fluctuations of real GDP.
B) the neutrality of money holds in the long run, but in the short run changes in the money supply cause significant fluctuations in employment but not real GDP.
C) there is no connection between the ʺmoneyʺ and ʺrealʺ sides of the economy, and the only effect is a decrease in the interest rate.
D) there is no connection between the ʺmoneyʺ and ʺrealʺ sides of the economy, and the only effect is a rise in the price level.
E) such increases in the money supply cause long-run disequilibriums in the economy.