Assuming that the economy is in the long run equilibrium at full employment, a reduction in...
Assuming that the economy is in the long run equilibrium at full employment, a reduction in the money supply will cause a(n):
A) increase in the price level and an increase in real GDP.
B) None of these
C) reduction in the price level and an increase in real GDP.
D) increase in the price level and a reduction in real GDP.
Homework Answers
Ans is B
a reduction in money supply will shift the demand curve to the left leading to a lower price
however in short run, real GDP decreases along with price and in long run equilibrium price further decreases keeping real GDP at full employment output/GDP
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