An increase in the money supply:
A)can affect real variables temporarily in the short run.
B)can not affect real variables in the long run.
C)can affect nominal variables in the long run.
D)all of the above.

Question

Quizplus · Accepted Answer

All of the statements are correct regarding the effects of an increase in the money supply. In the short run, it can indeed affect real variables like output and employment, but in the long run, its primary effect is on nominal variables such as the price level, without affecting real variables like real GDP. This is consistent with the classical dichotomy and the neutrality of money in the long run.

An Increase in the Money Supply