In the long run, a change in the money supply will affect which variable?

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Prepare for the Rutgers Macroeconomics Test with multiple choice questions, hints, and explanations. Master key concepts and excel in your exam!

Multiple Choice

In the long run, a change in the money supply will affect which variable?

Explanation:
In the long run, money is neutral, so changing the money supply affects only nominal variables. When the money supply rises, prices adjust upward one-for-one, so the price level increases. Real variables—real GDP, unemployment, and real interest rates—are determined by real factors like resources and technology and are not affected by money changes in the long run. Therefore, the variable that changes is the price level.

In the long run, money is neutral, so changing the money supply affects only nominal variables. When the money supply rises, prices adjust upward one-for-one, so the price level increases. Real variables—real GDP, unemployment, and real interest rates—are determined by real factors like resources and technology and are not affected by money changes in the long run. Therefore, the variable that changes is the price level.

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