Suppose the Federal Reserve implements expansionary monetary policy where the money supply increases. Which of the following will tend to occur in the long run as a result of this monetary policy action?
A)Output and the price level will both increase.
B)Output will increase with no change in the price level.
C)an increase in the price level and no change in output
D)no change in either the price level or output

Question

Quizplus · Accepted Answer

In the long run, an increase in the money supply will lead to an increase in the price level, but no change in output. This is known as the quantity theory of money, which suggests that in the long run, changes in the money supply will lead to proportional changes in the price level, but not affect real economic growth. Thus, choice C is the correct option.

Suppose the Federal Reserve Implements Expansionary Monetary Policy Where the Money