In the aggregate demand-aggregate supply model in the short run,an increase in the money supply will lead to a(n):
A)increase in both the price level and real GDP.
B)decrease in both the price level and real GDP.
C)increase in real GDP and a decrease in the price level.
D)decrease in real GDP and an increase in the price level.
E)increase in the price level only.

Question

Quizplus · Accepted Answer

An increase in the money supply will lead to a decrease in interest rates, which will incentivize consumption and investment spending. This shift in spending will lead to an increase in both aggregate demand and real GDP. As the economy moves along the short-run aggregate supply curve, the increase in aggregate demand will also lead to an increase in the price level. Therefore, there will be an increase in both the price level and real GDP in the short-run.

In the Aggregate Demand-Aggregate Supply Model in the Short Run,an