According to the model of aggregate supply and aggregate demand, in the long run, an increase in the money supply should cause prices to
A) rise and output to rise.
B) fall and output to remain unchanged.
C) fall and output to fall.
D) rise and output to remain unchanged.

Question

Quizplus · Accepted Answer

According to the model of aggregate supply and aggregate demand, in the long run, changes in the money supply only affect the price level and not the level of output. This is because changes in the money supply do not affect the economy's potential output, which is determined by factors such as technology and the size of the labor force. Therefore, an increase in the money supply will cause prices to rise but will not affect the level of output in the long run.

According to the Model of Aggregate Supply and Aggregate Demand