Which of the following is true?
I. The quantity theory predicts that in the long run the inflation rate equals the money growth rate minus the growth rate of potential GDP.
II. If the Fed decreases the federal funds rate,aggregate demand increases.
III. The Fed's monetary policy works by shifting the short-run aggregate supply curve.
A) I and II
B) II and III
C) I and III
D) I, II and III

Question

Quizplus · Accepted Answer

The quantity theory of money suggests that inflation equals the money growth rate minus the growth rate of real GDP in the long run. Lowering the federal funds rate typically increases aggregate demand by making borrowing cheaper. However, the Fed's monetary policy primarily affects aggregate demand, not the short-run aggregate supply curve.

Which of the Following Is True