Imagine two economies that are identical except that for a long time, economy A has had a money supply of $1,000 billion while economy B has had a money supply of $500 billion. It follows that
A)real GDP and the price level are lower in country B.
B)real GDP, but not the price level, is lower in country B.
C)the price level, but not real GDP is lower in country B.
D)neither the price level or real GDP is lower in country B.

Question

Quizplus · Accepted Answer

The money supply affects the price level, not real GDP, in the long run. With a lower money supply, economy B likely has a lower price level.

Imagine Two Economies That Are Identical Except That for a Long