Suppose the Fed permanently increases the money supply by a given amount. Which of the following is most likely to occur in the long run as a result of this monetary policy action?

Question

Quizplus · Accepted Answer

In the long run, a permanent increase in the money supply is most likely to result in higher prices (inflation) rather than affecting real variables such as employment, unemployment, or the real interest rate. According to the classical dichotomy, in the long run, money is neutral, meaning changes in the money supply only affect nominal variables, not real variables like employment or real interest rates.

Suppose the Fed Permanently Increases the Money Supply by a Given