How might changes in the money supply be non-neutral in the short run?
A) As the amount of money circulating in the economy changes before prices respond, consumers' purchases change accordingly, which leads producers to change production levels.
B) When money supply changes in the short run, it will affect nominal, but not real, variables in the short run.
C) As money growth increases at a faster rate, it will cause real GDP to grow at an equally faster rate.
D) If producers expect inflation to increase, they will increase supply in order to sell before the arrival of inflation.

Question

Quizplus · Accepted Answer

In the short run, changes in the money supply can be non-neutral because it takes time for prices to fully adjust to the new amount of money in circulation. As a result, consumers may alter their spending habits and producers may adjust production levels based on the perceived demand in the economy. This can lead to changes in output and employment that are not necessarily proportional to the change in the money supply.

How Might Changes in the Money Supply Be Non-Neutral in the Short