Which of the following can be affected by the money supply in the long run? Instructions: You may select more than one answer. Click the box with a check mark for correct answers and click to empty the box for the wrong answers.

a. Nominal GDP unanswered

b. Real GDP unanswered

c. Inflation unanswered

d. Unemployment unanswered

Answer & Explanation:

According to Friedman, an important characteristic of money is that, in the long run it is considered as 'neutral', which means that it only impact nominal variables but do not have an effect on real ones. Then, the monetary policy that operates through the money supply will only impacts nominal GDP, price levels and wages.

a. Nominal GDP - Can be affected by money supply

b. Real GDP - NOT affected

c. Inflation - Can be affected

d. Unemployment - NOT affected

Option D & C

Explanation:

Increase in money would cause more money to chase fewer commodities thereby causing price hike on products which would lead to inflation while increase in money supply is to stimulate economy and reduce unemployment rate.