If the short-run macroeconomic equilibrium occurs in the upward-sloping range of the short-run aggregate supply curve and the Federal Reserve increases the money supply, then which of the following will be true in the long run?
A) The nominal wage of workers will be lower compared to what it was in the short run.
B) Output will be higher compared to what it was in the short run.
C) The nominal wage of workers will be higher compared to what it was in the short run.
D) The price level will be lower compared to what it was in the short run.

Question

Quizplus · Accepted Answer

In the long run, an increase in the money supply leads to inflationary pressures, causing nominal wages to adjust upwards as workers demand higher wages to keep up with the increased cost of living. Output tends to return to its natural level, not remaining permanently higher due to the money supply increase.

If the Short-Run Macroeconomic Equilibrium Occurs in the Upward-Sloping Range