In the long run, an increase in the money supply
A) decreases real interest rates, increases investment, and decreases output.
B) decreases real interest rates, but has no effect on investment or output.
C) increases output, but has no effect on real interest rates or output.
D) has no effect on real interest rates, investment or output.

Question

Quizplus · Accepted Answer

In the long run, an increase in the money supply leads to higher price levels but does not affect real variables like real interest rates, investment, or output due to the economy's adjustment to a new equilibrium. This is consistent with the classical dichotomy and the neutrality of money.

In the Long Run, an Increase in the Money Supply