In the long run,what is the most likely effect of a sustained increase in money supply growth relative to the growth rate of potential real output?
A)It will cause the real interest rate to fall.
B)It will cause the nominal interest rate to fall.
C)It will reduce the natural rate of unemployment.
D)It will increase the price level.

Question

Quizplus · Accepted Answer

When the growth rate of money supply exceeds the growth rate of potential real output, it leads to an excess of money in circulation, causing a rise in demand for goods and services. This increase in demand results in an increase in the general price level over time, known as inflation. Therefore, the most likely effect of a sustained increase in money supply growth relative to the growth rate of potential real output is an increase in the price level.

In the Long Run,what Is the Most Likely Effect of a Sustained