Suppose that, at a time when there is full employment, the government
announces a substantial increase the money supply to finance public
investment projects but then reneges and, without further announcement,
does not expand the money supply at all. As a result
1. unemployment will increase in the short run
but the price level will be unaffected in the long run.
2. nothing will happen to either the unemployment
rate or the price level because the government does not actually
increase the money supply.
3. unemployment will increase in the short-run
and the price level will fall in the long run.
4. there will be a permanent change in the
unemployment rate.
Choose the correct option.