As long as wages and prices are flexible, an anticipated change in the money supply will lead to an increase in
A) the unemployment rate.
B) industrial production.
C) nominal income.
D) real wages.

Question

Quizplus · Accepted Answer

If wages and prices are flexible, an increase in the money supply will lead to an increase in nominal income. This happens because the increase in the money supply leads to an increase in spending, which raises nominal income. Real wages, however, may not increase if prices increase at the same rate as wages, leaving purchasing power unchanged.  Industrial production and unemployment rate may not be affected as they depend on various other factors.

As Long as Wages and Prices Are Flexible, an Anticipated