In the long run, when the Fed increases the quantity of money, the
A) price level rises.
B) nominal interest rate falls.
C) demand for money decreases.
D) price level falls.
E) real interest rate rises.

Question

Quizplus · Accepted Answer

According to the quantity theory of money, an increase in the quantity of money in the long run leads to a proportional increase in the price level. This is because the increased supply of money leads to higher demand for goods and services, which drives up prices.

In the Long Run, When the Fed Increases the Quantity