The Fed increases the money supply by buying securities for $300 million.The impact of this increase,in the long-run,would be to

Question

Quizplus · Accepted Answer

The Fed's purchase of securities increases the money supply, which in the long run leads to an increase in the average price level (inflation). However, in the long run, real GDP (output) is not affected by changes in the money supply. Instead, the increase in the money supply lowers the interest rate, which increases the demand for loanable funds and thus increases the real supply of loanable funds.

The Fed Increases the Money Supply by Buying Securities for $300