Suppose the Fed doubles the growth rate of the quantity of money in the economy. In the long run, the increase in money growth will change which of the following? a. The price level
b. The inflation rate
c. The quantity of physical capital
d. The size of the labor force

In the long run the increase in the money growth will change the

The answer to this question can easily be traced to the quantity theory of money.

This theory has it that if there is a doubling in the quantity of money that is available in an economy, it would also lead to a doubling in the price level in the same economy.

When the price level rises, this would also lead to a rise in the levels of inflation in the economy.

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The price level and the inflation rate.

Explanation:

It should be noted that in the long run, the changes in money supply affects the nominal variables like inflation rate, exchange rate, price level and does not affect the real variables.

Therefore, when the Fed doubles the growth rate of the quantity of money in the economy. In the long run, the increase in money growth will change the price level and the inflation rate.

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