Question

An increase in the money supply causes output to rise in the long run.

Group of answer choices

True

False

Answer 1

This statement is False ,

Because

Aggregate demand for goods and services increase with the rise in money supply.In a long run if money supply increase it means that there is low interest rates.hence more money is there in the hands of consumers.this leads to inflation.in inflation there is rise in prices of goods and services.increase in prices effect as decrease in output.hence in a long run if a money supply increase output do not increase.increase in money supply is directly proportional to price level.price levels are highly influenced by the unemployment level.unemployment affects the output of an economy.extreme full employment situation leads to increase in money supply.in an extreme full employment situation it is not possible for the producers to produce more output.hence although the money supply increase the output do not increase.again, increase in money supply leads to increase in demand.hence the producers will try for more production to meet the demand.but there is already full employment.hence workers will shift.but unemployment will exist.hence overall output will not increase.