Figure 34-1
-Refer to Figure 34-1.An increase in the money supply would move the economy from C to
A)B in the short run and the long run.
B)D in the short run and the long run.
C)B in the short run and A in the long run.
D)D in the short run and C in the long run.

Question

Figure 34-1 
-Refer to Figure 34-1.An increase in the money supply would move the economy from C to
A)B in the short run and the long run. 
B)D in the short run and the long run. 
C)B in the short run and A in the long run. 
D)D in the short run and C in the long run.

Quizplus · Accepted Answer

An increase in the money supply would lead to a lower interest rate, which would increase investment and aggregate demand in the short run. This would move the economy from point C to B in the short run. However, in the long run, the increase in the money supply would lead to an increase in prices, shifting the short-run aggregate supply curve to the left. As a result, the economy would move from point B to A in the long run.

Figure 34-1 -Refer to Figure 34-1.An Increase in the Money Supply Would