Which of the following statements about the classical money transmission mechanism is FALSE?
A) The quantity theory provides a good explanation of the short-run impact of monetary growth.
B) The quantity theory provides a good explanation of the long-run impact of monetary growth.
C) Changes in the money supply typically affect prices before equilibrium can be reestablished.
D) People typically respond to money supply changes by making more or fewer purchases of goods and services.

Question

Quizplus · Accepted Answer

The classical money transmission mechanism does not provide a good explanation of the short-run impact of monetary growth. In the short run, changes in the money supply can affect real output and employment, in addition to prices, which the quantity theory does not take into account.

Which of the Following Statements About the Classical Money Transmission