In the long run, changes in the money supply change prices but not real output and interest rates.

Question

Quizplus · Accepted Answer

According to the classical dichotomy and the quantity theory of money, in the long run, changes in the money supply affect nominal variables like prices but do not affect real variables like real output (GDP) or real interest rates. This is because, in the long run, prices adjust to changes in the money supply, neutralizing its effect on real variables.

In the Long Run, Changes in the Money Supply Change