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

Question

Quizplus · Accepted Answer

An increase in the money supply cannot affect real variables in the long run according to the classical dichotomy, which posits that real and nominal variables do not affect each other in the long run. Real variables adjust, making the effects of changes in the money supply neutral in terms of real output or employment.

An Increase in the Money Supply