In the long run, when the Fed increases the quantity of money,
A) no real variable changes.
B) the price level falls.
C) the real interest rate rises.
D) the nominal interest rate falls.

Question

Quizplus · Accepted Answer

When the Fed increases the quantity of money in the long run, it primarily affects nominal variables such as the price level, leading to inflation. Real variables, which are adjusted for inflation, such as real GDP, real interest rates, and unemployment rates, are not affected in the long run according to classical economic theory.

In the Long Run, When the Fed Increases the Quantity