A correctly anticipated increase in the quantity of money, in an economy with an unchanging long- run aggregate supply, will result in
A)no change in the price level and no change in real GDP.
B)a rise in the price level and a decrease in real GDP.
C)no change in the price level and an increase in real GDP.
D)a rise in the price level and an increase in real GDP.
E)a proportional rise in the price level and no change in real GDP.

Question

Quizplus · Accepted Answer

In the long run, an increase in the money supply leads to a proportional increase in the price level, with no change in real GDP, due to the economy's return to its potential output level.

A Correctly Anticipated Increase in the Quantity of Money, in an Economy