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If the Fed Reduces the Money Supply by 5 Percent

Question 3

Multiple Choice

If the Fed reduces the money supply by 5 percent and the quantity theory of money is true, then output will fall 5 percent in the short run and:


A) prices will remain unchanged in the long run.
B) output will fall 5 percent in the long run.
C) prices will fall 5 percent in the long run.
D) output will remain unchanged in the long run.

Correct Answer:

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