In the monetary intertemporal model, changing M
A)has real consequences.
B)affects output directly.
C)has no impact on prices or inflation.
D)affects the price level.
E)is used to create economic growth in the short run.

Question

Quizplus · Accepted Answer

Changing M affects the price level in the monetary intertemporal model. Increasing M leads to an increase in aggregate demand, which leads to an increase in prices in the short run due to sticky wages and prices. In the long run, however, prices fully adjust to reflect the increase in the money supply, leading to no change in output but a higher price level.

In the Monetary Intertemporal Model, Changing M