What is the effect of increases in the capital stock and in the money supply on prices in the long run?
A) Both make the price level rise.
B) Both make the price level fall.
C) Increases in the capital stock make the price level rise, while increases in the money supply make prices fall.
D) Increases in the capital stock make the price level fall, while increases in the money supply make prices rise.

Question

Quizplus · Accepted Answer

Increases in the capital stock generally lead to higher productivity and lower prices, as goods and services can be produced more efficiently. On the other hand, increases in the money supply, without a corresponding increase in goods and services, typically lead to inflation, which means higher prices.

What Is the Effect of Increases in the Capital Stock