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, the SRAS will: A) not change, since in the classical model the SRAS and LRAS are both vertical at potential output. B) decrease from SRAS₁ to SRAS₂. C) increase from SRAS₂ to SRAS₁. D) increase from SRAS₁ to SRAS₂.

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Quizplus · Accepted Answer

According to the classical model, the SRAS curve is vertical at potential output, meaning that changes in the money supply do not affect it. Therefore, the SRAS curve will remain unchanged and the only effect will be a shift in the aggregate demand curve.

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