In the short-run,a temporary increase in the money supply
A)shifts the AA curve to the right,increases output and depreciates the currency.
B)shifts the AA curve to the left,increases output and depreciates the currency.
C)shifts the AA curve to the left,decreases output and depreciates the currency.
D)shifts the AA curve to the left,increases output and appreciates the currency.
E)shifts the AA curve to the right,increases output and appreciates the currency.

Question

Quizplus · Accepted Answer

According to the Mundell-Fleming model, in the short-run, an increase in money supply shifts the LM curve down and to the right. This results in lower interest rates and higher output. This shift also results in a lower exchange rate, leading to a depreciation of the currency. Therefore, option A is the correct answer.

In the Short-Run,a Temporary Increase in the Money Supply