Which of the following is true?
I. The quantity theory predicts that in the long run the inflation rate equals the money growth rate minus the growth rate of potential GDP.
II. If the Fed decreases the federal funds rate, aggregate demand increases.
III. The Fedʹs monetary policy works by shifting the short-run aggregate supply curve.
A) II and III
B) I, II and III
C) I and II
D) I and III

Question

Quizplus · Accepted Answer

I. The quantity theory predicts that in the long run, the inflation rate equals the money growth rate minus the growth rate of potential GDP.
II. Correct, as a decrease in the federal funds rate lowers interest rates, which increases borrowing and spending, thereby increasing aggregate demand.
III. Incorrect, the Fedʹs monetary policy works by shifting the aggregate demand curve, not the short-run aggregate supply curve.

Which of the Following Is True