Consider the exhibit below for the following questions.
Figure 23-1
-Refer to Figure 23-1.An increase in the money supply would move the economy from C to
A) B in the short run and the long run.
B) D in the short run and the long run.
C) B in the short run and A in the long run.
D) D in the short run and C in the long run.

Question

Consider the exhibit below for the following questions.
Figure 23-1 
-Refer to Figure 23-1.An increase in the money supply would move the economy from C to
A) B in the short run and the long run. 
B) D in the short run and the long run. 
C) B in the short run and A in the long run. 
D) D in the short run and C in the long run.

Quizplus · Accepted Answer

An increase in the money supply shifts the AD curve to the right, causing an increase in both output and price level in the short run. This will take the economy from point C to point B. In the long run, the increase in the money supply will lead to an increase in the price level but no change in output, as the economy returns to its natural level of output. This will move the economy from point B to point A. Therefore, the correct choice is C.

Consider the Exhibit Below for the Following Questions