Suppose that from an initial AD/SAS/LAS intersection,the money supply grows by ten percent.At the same time,the nominal wage rises by six percent.As a result,output will be ________ the natural GDP,with a price level ________.
A)below,10 percent lower
B)below,10 percent higher
C)below,between 6 and 10 percent lower
D)above,that is unchanged
E)above,between 6 and 10 percent higher

Question

Quizplus · Accepted Answer

When the money supply grows, it typically leads to an increase in aggregate demand (AD), which would push the economy towards higher output and higher prices. The increase in nominal wages by 6% suggests that the cost of production for firms increases, which could shift the aggregate supply (AS) curve to the left, indicating a higher cost of production but not as drastically as the increase in AD. Therefore, output would be above the natural GDP because of the increased demand, and the price level would be higher, but the exact increase in price level would be tempered by the increase in nominal wages, placing it between 6 and 10 percent higher.

Suppose That from an Initial AD/SAS/LAS Intersection,the Money Supply Grows