Question

g Real and nominal variables are highly intertwined, and changes in the money supply change real GDP. Most economists would agree that this statement accurately describes a. both the short run and the long run. b. the short run, but not the long run. c. the long run, but not the short run. d. neither the long run nor the short run.

Answer 1

The correct answer is C.

Step-by-step explanation:

GDP usually, is fixed in the short run. Thus, in the short-term, money supply will increase aggregate demand and prices will follow.

In the long term, however, real GDP (which is economic output that has been adjusted for price fluctuations), an increase in the money supply will create an increase in the GDP due to aggregate demand.

The US economy, for example, displays a strong positive correlation between the amount of money supplied and it's GDP growth between 1994 and 2009.

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