According to the flexible price framework ________.
A)economic fluctuations determine long-run outcomes
B)a change in the money supply has no effect on real output
C)a change in inflation alters the amount of real investment
D)all of the above
E)none of the above

Question

Quizplus · Accepted Answer

According to the flexible price framework, changes in the money supply only affect nominal variables such as prices and wages, and have no effect on real output. This is because prices will adjust to equate supply and demand in the market for goods and services, and wages will adjust to equate supply and demand in the labor market. Therefore, real output will remain unchanged in the long run. Economic fluctuations are also seen as temporary deviations from the long-run equilibrium, and the economy will eventually return to its natural level of output and employment. Changes in inflation, on the other hand, may affect the purchasing power of investors and consumers, but will not directly alter the amount of real investment.

According to the Flexible Price Framework ________