An unexpected increase in money growth increases both inflation and real growth in the long run.

Question

Quizplus · Accepted Answer

According to the Quantity Theory of Money, an unexpected increase in money growth may initially cause some short-term increase in real growth, but in the long run, it will only lead to inflation without any significant effect on real growth. This is because the increase in money supply will cause a rise in prices, leading to a decrease in the purchasing power of money, and ultimately leading to inflation.

An Unexpected Increase in Money Growth Increases Both Inflation and Real