If the economy is at potential output and the Fed decreases the money supply, in the long run real GDP will likely decrease.

Name: If the economy is at potential output and the Fed decreases the money supply, in the long run real GDP will likely decrease.
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Question

Quizplus · Accepted Answer

In the long run, real GDP is determined by factors such as technology and resources, not by the money supply. A decrease in the money supply may affect prices and interest rates, but not the long-term level of real GDP.

If the Economy Is at Potential Output and the Fed