If the Federal Reserve increases the growth rate of the money supply,in the long run
A)inflation is higher and the unemployment rate is lower.
B)inflation is higher while the unemployment rate is unchanged.
C)inflation is unchanged while the unemployment rate is lower.
D)None of the above is correct.

Question

Quizplus · Accepted Answer

According to the quantity theory of money, an increase in the money supply will lead to an increase in the overall price level in the long run. This means that inflation will be higher. However, in the long run, the money supply growth rate does not affect the unemployment rate, which is determined by other factors such as labor market conditions and productivity. Therefore, there is no change in the unemployment rate, and the correct answer is B - inflation is higher while the unemployment rate is unchanged.

If the Federal Reserve Increases the Growth Rate of the Money