According to the model of aggregate supply and aggregate demand in the long run an increase in the money supply should cause ?
Correct answer: D. prices to rise and output to remain unchanged
- A. Prices to rise and output to rise
- B. Price to fall and output to remain unchanged
- C. Prices to fall and output to fall
- D. prices to rise and output to remain unchanged
Explanation
In the long run, output is fixed at its natural rate because prices and wages adjust, so an increase in money supply raises the price level without changing real output. This is the classical neutrality of money.
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