If the economy is at potential output and the Fed increases the money supply, in the LONG run the price level will likely:

Question

Quizplus · Accepted Answer

If the economy is at potential output, any increase in the money supply will lead to an increase in aggregate demand, which will eventually lead to an increase in the price level in the long run due to cost-push inflation. Thus, option D is the correct choice.

If the Economy Is at Potential Output and the Fed