"A rise in the money supply raised output in the short run, but left output unaffected in the long run." This statement implies that the price level __________ in the long run, causing the interest rate to __________.

Question

Quizplus · Accepted Answer

In the long run, an increase in the money supply leads to a proportional increase in the price level (inflation) without affecting the real output, according to classical economic theory. As prices rise, the demand for money for transactions purposes increases, leading to an increase in interest rates.

"A Rise in the Money Supply Raised Output in the Short