According to new Keynesian economists, sustained expected increases in the nominal money supply will lead to
A)increases in output in the short run and sustained increases in prices in the long run.
B)sustained increases in prices, with no short-run increases in output.
C)short-run increases in prices and output, with a stable price level and no increases in output in the long run.
D)sustained increases in both prices and output in the long run.

Question

Quizplus · Accepted Answer

New Keynesian economists believe that in the short run, an increase in the nominal money supply will lead to an increase in output due to increased investment and consumption. However, in the long run, prices will adjust to reflect the increase in the money supply, leading to sustained increases in prices but not output.

According to New Keynesian Economists, Sustained Expected Increases in the Nominal