If the short-run aggregate supply curve is horizontal and the bank of Canada increases the money supply,then:
A) output and employment will increase in the short run.
B) output and employment will decrease in the short run.
C) prices will increase in the short run.
D) prices will decrease in the short run.

Question

Quizplus · Accepted Answer

If the short-run aggregate supply curve is horizontal, it means that in the short run, output and employment can be increased without affecting prices. If the Bank of Canada increases the money supply, it will lead to an increase in aggregate demand, causing firms to increase output and employment to meet the new demand. Therefore, output and employment will increase in the short run.

If the Short-Run Aggregate Supply Curve Is Horizontal and the Bank