An increase in the money supply:
A)can affect real variables temporarily in the short run.
B)can not affect nominal variables in the short run.
C)can affect real variables in the long run.
D)all of the above.

Question

Quizplus · Accepted Answer

An increase in the money supply can affect real variables temporarily in the short run, as it leads to lower interest rates and increased borrowing and spending in the economy, which can in turn increase output and employment in the short run. However, over the long run, any effects on real variables will be minimal, as the economy adjusts to the increased money supply and returns to its long-term equilibrium. It may also affect nominal variables such as inflation and nominal interest rates in the short run.

An Increase in the Money Supply