"A drop in the money supply lowered 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, a drop in the money supply leads to a decrease in the price level, which in turn causes the interest rate to fall as the real money supply increases.

"A Drop in the Money Supply Lowered Output in the Short