In the long-run ISLM model and with everything else held constant,the long-run effect of an expansionary monetary policy is to
A)increase real output and the interest rate.
B)not change either real output or the interest rate.
C)increase real output and leave the interest rate unchanged.
D)increase the interest rate and leave real output unchanged.

Question

Quizplus · Accepted Answer

In the long-run ISLM model, the economy is at full employment, and changes in the money supply only affect the price level. Therefore, an expansionary monetary policy will not change either real output or the interest rate in the long run.

In the Long-Run ISLM Model and with Everything Else Held