In the long run,an increase in the money supply
A)leaves prices and unemployment unchanged.
B)raises prices and unemployment.
C)raises prices and leaves unemployment unchanged.
D)leaves prices unchanged and reduces unemployment.

Question

Quizplus · Accepted Answer

An increase in the money supply increases aggregate demand in the economy. This leads to an increase in the prices of goods and services over time. However, in the long run, wages and other input costs will also increase, leaving unemployment relatively unchanged. This is known as the long-run Phillips curve, which shows that there is a trade-off between inflation and unemployment in the short run, but not in the long run. Therefore, the increase in the money supply raises prices and leaves unemployment relatively unchanged in the long run.

In the Long Run,an Increase in the Money Supply