According to the aggregate demand and aggregate supply model, in the long run what is the impact of an increase in the money supply?
A)It leads to increased price level and real GDP.
B)It leads to increased GDP, but there is no change in the price level.
C)It leads to increased price level, but there is no change in real GDP.
D)It does not cause a change in either the price level or real GDP.

Question

Quizplus · Accepted Answer

According to the aggregate demand and aggregate supply model, in the long run, an increase in the money supply only leads to an increase in the price level but doesn't impact the real GDP. The reason behind this is because in the long run, nominal wages and other input prices adjust with the changes in the price level, resulting in no change in output. Therefore, Choice C is the best option.

According to the Aggregate Demand and Aggregate Supply Model, in the Long