For this question,assume that the economy is initially operating at the natural level of output.A one- time 5% reduction in the nominal money supply will cause
A)a 5% reduction in the price level in the medium run.
B)a 5% increase in the interest rate (i)in the medium run.
C)a 5% reduction in the real money supply in the medium run.
D)all of the above

Question

Quizplus · Accepted Answer

In the medium run, a reduction in the nominal money supply leads to a proportional decrease in the price level, assuming the economy returns to the natural level of output and velocity of money is constant.

For This Question,assume That the Economy Is Initially Operating at the Natural