According to the classical model of the price level, an increase in the money supply will cause _____ and _____ increase in real GDP.
A) inflation; no long-run
B) inflation; a long-run
C) no inflation; a long-run
D) deflation; no long-run

Question

Quizplus · Accepted Answer

In the classical model, an increase in the money supply is believed to lead to inflation in the long term, without affecting the real GDP. This is because the model assumes prices are flexible, and the economy is always at or returns quickly to full employment.

According to the Classical Model of the Price Level, an Increase