In order for the long- run neutrality of money to hold, an increase in money supply must cause:
A) the money demand curve to shift upwards enough to raise the interest rate.
B) the money demand curve to shift down to keep the interest rate constant.
C) the money demand curve to shift downwards enough to lower the interest rate.
D) the money demand curve to shift up to keep the interest rate constant.

Question

Quizplus · Accepted Answer

In the long run, the neutrality of money implies that changes in the money supply only affect nominal variables and not real variables like the interest rate. For the interest rate to remain constant, the money demand curve must shift up proportionally to the increase in money supply.

In Order for the Long- Run Neutrality of Money to Hold