According to the classical theory, an expansionary monetary policy ________ the price level and ________ output in the long run.

Question

Quizplus · Accepted Answer

According to classical theory, changes in the money supply only affect nominal variables (prices), not real variables (output). In the long run, prices adjust to changes in the money supply, but output remains at its natural level. Therefore, an expansionary monetary policy will lead to an increase in prices (inflation) but will not have any long-term effect on output.

According to the Classical Theory, an Expansionary Monetary Policy ________