Consider the exhibit below for the following questions.
Figure 14-1
-Refer to Figure 14-1. How would an increase in the money supply move the economy in the short and long run?
A)From C to B in the short run and the long run.
B)From C to D in the short run and the long run.
C)From C to B in the short run and to A in the long run.
D)From C to D in the short run and to C in the long run.

Question

Consider the exhibit below for the following questions.
Figure 14-1 
-Refer to Figure 14-1. How would an increase in the money supply move the economy in the short and long run?
A)From C to B in the short run and the long run. 
B)From C to D in the short run and the long run. 
C)From C to B in the short run and to A in the long run. 
D)From C to D in the short run and to C in the long run.

Quizplus · Accepted Answer

An increase in the money supply will shift the AD curve to the right, from AD1 to AD2, leading to an increase in real GDP (Y) and higher price levels (P) in the short run, from point C to point B. However, in the long run, the increase in AD will cause firms to increase production, leading to higher input costs, higher wages, and higher prices, resulting in a shift of the AS curve from AS1 to AS2. In the long run, the increase in the money supply will only lead to higher price levels (P), and output will return to its natural level, YN, at point A. Therefore, the correct answer is (C): From C to B in the short run and to A in the long run.

Consider the Exhibit Below for the Following Questions