An increase in the money supply causes _____ in output in the short run and _____ in output in the long run.
A) an increase; no change
B) an increase; an increase
C) no change; an increase
D) no change; no change

Question

Quizplus · Accepted Answer

In the short run, an increase in the money supply can lower interest rates, encouraging borrowing and investment, leading to an increase in overall economic output. However, in the long run, the economy adjusts to this change through price level increases (inflation), and the real output returns to its potential level, resulting in no change in output.

An Increase in the Money Supply Causes _____ in Output