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

Question

Quizplus · Accepted Answer

In the long run, a decrease in the money supply leads to lower price levels, but real variables like real interest rates, investment, and output return to their natural levels, unaffected by the money supply.

In the Long Run, a Decrease in the Money Supply