In the AD-AS model with a long-run potential growth rate of 2%,a 6 percentage point increase in the money supply growth rate will cause the economy's growth rate to be _____ in the long run.
A) 2%
B) 4%
C) 6%
D) 8%

Question

Quizplus · Accepted Answer

In the long run, the economy's growth rate is determined by the potential growth rate of the economy, which is given as 2%. Therefore, regardless of any change in the money supply growth rate, the economy's long-run growth rate will remain 2%. In the short run, however, the increase in the money supply growth rate may cause an increase in output and prices, leading to a temporary boost in the economy's growth rate.

In the AD-AS Model with a Long-Run Potential Growth Rate