Most economists believe that in the short run

Question

a.

real and nominal variables are determined independently and that money cannot move real GDP away from its long-run trend.
b.

real and nominal variables are highly intertwined but that money cannot move real GDP away from its long- run trend.
c.

real and nominal variables are determined independently but that money can temporarily move real GDP away from its long-run trend.
d.

real and nominal variables are highly intertwined and that money can temporarily move real GDP away from its long-run trend.

Answer 1

The correct answer is:

d. real and nominal variables are highly intertwined and that money can temporarily move real GDP away from its long-run trend.

In the short run, changes in the money supply can affect real GDP and other economic variables, leading to fluctuations around the long-run trend. However, in the long run, real GDP is determined by factors such as technology, labor, and capital, and the influence of money is more about price levels rather than affecting real output.