Assume the economy is initially operating at the natural level of output

Economics Dec 15, 2020

Assume the economy is initially operating at the natural level of output. Which of the following events will NOT change the composition of output (i.e., the percentage of GDP composed of consumption, investment, ... etc.) in the medium run? A) a reduction in government spending B) a cut in taxes C) a reduction in the desire to save D) an increase in consumer confidence E) an increase in the money supply

Expert Solution

Answer.

(E) an increase in the money supply

Because monetary policy is neutral in medium run.

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