Figure 14-1
-Refer to the 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 back to C in the long run

Question

Figure 14-1  
-Refer to the 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 back to C in the long run

Quizplus · Accepted Answer

An increase in the money supply would lead to a decrease in interest rates, which would encourage investment and consumption in the short run, moving the economy from point C to point B. However, in the long run, the increase in the money supply may lead to an increase in prices, causing inflation, and ultimately moving the economy from point B to point A.