In the long run, when the Fed increases the quantity of money the
A) nothing real changes.
B) price level falls.
C) nominal interest rate falls.
D) real interest rate rises.

Question

Quizplus · Accepted Answer

In the long run, an increase in the money supply by the Fed leads to higher price levels (inflation), but it does not affect real variables like real GDP, real interest rates, or employment. This is consistent with the classical dichotomy and the neutrality of money in the long run.

In the Long Run, When the Fed Increases the Quantity