Asked by Jared Myers on Jul 09, 2024
Verified
In the long run, money demand and money supply determine
A) the value of money and the real interest rate.
B) the value of money but not the real interest rate.
C) the real interest rate but not the value of money.
D) neither the value of money nor the real interest rate.
Money Demand
The desired holding of financial assets in the form of money; it is often associated with the level of liquidity preference.
Real Interest Rate
The interest rate adjusted for inflation, representing the true cost of borrowing or real yield on investment.
Value of Money
The purchasing power of currency, indicating the amount of goods or services that one unit of money can buy, which fluctuates over time due to inflation or deflation.
- Recognize the long-run determinants of the price level and inflation rate.
Verified Answer
DB
duygu bekmenJul 14, 2024
Final Answer :
B
Explanation :
In the long run, money demand and money supply primarily determine the value of money (i.e., the purchasing power of money or the price level) but not the real interest rate. The real interest rate is influenced by factors such as productivity and preferences for saving and investment, rather than by money supply and demand directly.
Learning Objectives
- Recognize the long-run determinants of the price level and inflation rate.