-In the figure above, in the long run what happens if the Fed increases the quantity of money by 5 percent?
A) The value of money falls by 5 percent and there will be a movement down along the LRMD curve.
B) The real interest rate falls and the LRMD curve shifts rightward.
C) The nominal interest rate rises by 5 percent.
D) The price level rises by 5 percent and the LRMD shifts leftward.
E) The value of money rises by 5 percent.

Question

-In the figure above, in the long run what happens if the Fed increases the quantity of money by 5 percent?
A) The value of money falls by 5 percent and there will be a movement down along the LRMD curve. 
B) The real interest rate falls and the LRMD curve shifts rightward. 
C) The nominal interest rate rises by 5 percent. 
D) The price level rises by 5 percent and the LRMD shifts leftward. 
E) The value of money rises by 5 percent.

Quizplus · Accepted Answer

In the long run, an increase in the money supply leads to a proportional increase in the price level, causing the value of money to fall by the same percentage, resulting in a movement down along the Long-Run Money Demand (LRMD) curve.

-In the Figure Above, in the Long Run What Happens