Use the following to answer questions:
-(Figure: Classical Model of the Price Level) Refer to Figure: Classical Model of the Price Level. If the central bank increases the money supply such that aggregate demand shifts from AD₁ to AD₂, according to this classical model, real GDP will:

Question

Use the following to answer questions:

-(Figure: Classical Model of the Price Level) Refer to Figure: Classical Model of the Price Level. If the central bank increases the money supply such that aggregate demand shifts from AD₁ to AD₂, according to this classical model, real GDP will:

Quizplus · Accepted Answer

In the classical model, the economy is always at or returns to the natural level of output (potential output) in the long run, regardless of changes in the money supply. Therefore, an increase in the money supply shifts the aggregate demand curve but does not change real GDP, which remains at the natural level of output.

Use the Following to Answer Questions