In the long-run, reduced money growth results in ________ while having no effect on the level of output.
A) lower inflation and lower unemployment
B) lower interest rates and lower inflation
C) lower interest rates and less purchasing of durable goods
D) higher interest rates and no change in inflation

Question

Quizplus · Accepted Answer

In the long-run, reduced money growth leads to lower inflation because there is less money chasing the same amount of goods and services, which reduces the price level. It also leads to lower interest rates as the demand for borrowing decreases with lower inflation expectations. This adjustment has no direct effect on the level of output in the long run, as output is determined by real factors such as technology, resources, and labor.

In the Long-Run, Reduced Money Growth Results in ________ While