In the long run,if the money supply increases:
A)most of the resulting rise in nominal GDP will be a result of increases in the exchange rate.
B)most of the resulting rise in nominal GDP will be a result of increases in the price level.
C)most of the resulting rise in real GDP will be a result of increases in the price level.
D)most of the resulting rise in real GDP will be a result of increases in the interest rate.
E)most of the resulting rise in real GDP will be a result of increases in aggregate expenditure.

Question

Quizplus · Accepted Answer

An increase in the money supply will cause a rightward shift in the aggregate demand curve, leading to an increase in both nominal GDP and the price level. However, in the long run, the increase in nominal GDP will primarily be a result of the increase in the price level, as the economy adjusts to the new money supply. This is consistent with the Quantity Theory of Money, which posits that changes in the money supply are mostly reflected in changes in the price level.

In the Long Run,if the Money Supply Increases