In the long run, countries with higher rates of money growth usually have:

Question

BlackTom AI · Accepted Answer

To start, let's lay out what the question is asking: in the long run, what tends to happen in countries that experience higher money growth?
Option 1: 'higher rates of inflation' – This is the classic outcome predicted by monetary theories in the long run. When money supply grows faster than real output, prices rise, leading to higher inflation. The long-run neutrality of money implies real variables like real output or unemployment aren’t systematically affected, but the price level and inflation rate do rise.
Option 2: 'lower rates of inflation' – This runs counter to the standard long-run relationship. If money grows faster, the inflation rate tends to rise, not fall. So this choice contradicts the basic mechanism of money supply expansion.
Option 3: 'faster growth rates of real output' – In the long run, persistent increases in money growth do not create sustained faster growth in real output due to the separation between nominal and real variables (the long-run neutrality of money). Real growth hinges on real factors like technology and resources, not ongoing money expansion.
Option 4: 'slower growth rates of real output' – Similarly, long-run money growth does not causally slow real output persistently. The typical argument is that money affects prices, not the steady-state level or growth rate of real output, so this option misstates the long-run effect.
In summary, only option 1 aligns with the standard long-run prediction that higher money growth leads to higher inflation, while the others misstate the long-run impact on real variables or inflation direction.

In the long run, countries with higher rates of money growth usually have:

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