Asked by Johnna-Bryante Rayphen on Jul 12, 2024

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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.

Money Supply Increases

A situation where the total amount of money in circulation within an economy is expanded.

Nominal GDP

The gross domestic product measured at current market prices, not adjusting for inflation, reflecting the value of all goods and services produced.

Real GDP

The total value of all goods and services produced by an economy over a specific time period, adjusted for inflation.

  • Investigate the extended consequences of financial policy on pricing trends, real Gross Domestic Product, and possible output levels.
  • Describe the long-run neutrality of money and its implications for inflation, unemployment, and real GDP.
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BP
Barbara PetilloJul 16, 2024
Final Answer :
B
Explanation :
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.