If the short-run macroeconomic equilibrium occurs in the classical range of the short-run aggregate supply curve, then an increase in money supply will _____ output and will _____ the price level.
A) not change; decrease
B) increase; not change
C) not change; increase
D) decrease; not change

Question

Quizplus · Accepted Answer

In the classical range of the short-run aggregate supply curve, the economy is at or near full employment, and output cannot increase significantly. Therefore, an increase in the money supply primarily affects the price level, leading to inflation without changing output.

If the Short-Run Macroeconomic Equilibrium Occurs in the Classical Range