Which of the following statements is FALSE?
A)the relationship between money growth and inflation is much looser for M1 than M2
B)in the short run, the velocity of M2 is affected by variations in output and interest rates
C)there is no economic rule that says that velocity must be constant in the long run
D) in the long run, the inflation rate is always exactly equal to the growth rate of money supply
E)higher monetary growth lowers real interest rates in the short run, but raises nominal interest rates in the long run

Question

Quizplus · Accepted Answer

In the long run, the inflation rate is not always exactly equal to the growth rate of the money supply. This statement is false. The relationship between money growth and inflation may be much looser for M1 than M2, and the velocity of M2 may be affected by variations in output and interest rates in the short run. Additionally, there is no economic rule that says that velocity must be constant in the long run, and higher monetary growth may lower real interest rates in the short run, but raise nominal interest rates in the long run.

Which of the Following Statements Is FALSE