An unexpected increase in money growth leads to increased real GDP growth in:
A) the short run only.
B) the long run only.
C) both the short run and the long run.
D) neither the short run nor the long run.

Question

Quizplus · Accepted Answer

In the short run, an unexpected increase in money growth can lead to increased spending and investment, which increases aggregate demand and leads to an increase in real GDP growth. However, in the long run, prices adjust to the increased money supply and the initial increase in real output is only temporary. Therefore, the increase in money growth has no effect on long run real GDP growth.

An Unexpected Increase in Money Growth Leads to Increased Real