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Figure: Monetary Policy and the AD-SRAS Model
-(Figure: Monetary Policy and the AD-SRAS Model) Refer to Figure: Monetary Policy and the AD-SRAS Model. An increase in the money supply is most likely to cause a shift:
A) from SRAS to SRAS'.
B) from AD to AD'.
C) from SRAS' to SRAS.
D) from AD' to AD.

Question

Use the following to answer questions:
Figure: Monetary Policy and the AD-SRAS Model 
-(Figure: Monetary Policy and the AD-SRAS Model) Refer to Figure: Monetary Policy and the AD-SRAS Model. An increase in the money supply is most likely to cause a shift:
A) from SRAS to SRAS'. 
B) from AD to AD'. 
C) from SRAS' to SRAS. 
D) from AD' to AD.

Quizplus · Accepted Answer

An increase in the money supply is a form of expansionary monetary policy and would shift the aggregate demand (AD) curve to the right, from AD to AD'. This would result in higher output and prices in the short run, as shown by the new equilibrium point (E') where the AD' curve intersects the short-run aggregate supply (SRAS) curve. There would be no shift in the SRAS curve.

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