When the money market is depicted in a diagram with the value of money on the vertical axis, which of the following best describes the long run effects of an increase in money supply?
A)The price level and the quantity of money demanded increases.
B)The price level increases, but the quantity of money demanded decreases.
C)The price level decreases, but the quantity of money demanded increases.
D)The price level and the quantity of money demanded decreases.

Question

Quizplus · Accepted Answer

In the long run, an increase in money supply will lead to an increase in the price level, as more money is chasing the same amount of goods and services. The quantity of money demanded will also increase, as people will hold more money in anticipation of future price increases.

When the Money Market Is Depicted in a Diagram with the Value