Which one of the following statements is the most accurate?
A) A permanent increase in the money supply cannot have any short-run effects.
B) A permanent increase in taxes cannot have any short-run effects.
C) A permanent decrease in the money supply cannot have short-run effects.
D) A permanent decrease in taxes cannot have short-run effects.
E) A permanent increase in money demand can be offset with a permanent increase in the money supply of equal magnitude.

Question

Quizplus · Accepted Answer

A permanent increase in money demand can be offset with a permanent increase in the money supply of equal magnitude, as this would maintain the equilibrium in the money market, keeping interest rates and economic activity stable in the short run.

Which One of the Following Statements Is the Most Accurate