Assume the money supply doubles, followed by a doubling of the wage rate and the price level. Under these circumstances, we can safely conclude that:

Question

Quizplus · Accepted Answer

The doubling of the money supply will cause inflation, leading to a rise in prices and wages. However, these nominal changes do not necessarily result in any real changes to the output of an economy. Real output is determined by the factors of production, technology, and institutions, not by changes in the money supply. Therefore, nominal output will double, but real output will remain unchanged.

Assume the Money Supply Doubles, Followed by a Doubling of the Wage