Changes in the money supply have no long-run effects on the interest rate because when the price level changes, the demand for money changes to offset the short-run changes in the money supply.

Question

Quizplus · Accepted Answer

This statement reflects the classical dichotomy and the neutrality of money in the long run, suggesting that changes in the money supply only affect nominal variables (like the price level) and not real variables (like the real interest rate) in the long run.

Changes in the Money Supply Have No Long-Run Effects on the Interest